Trusts Law Changes
The Trusts Act 2019 has been passed and we have commenced the 18-month countdown to its coming into effect on 30 January 2021. As is often the case with Acts where we are given time to prepare, there is a lot of information available and plenty of discussions – but whether there is much action is a lot less evident.
There is likely to be a large flurry of action as we get closer to that 2021 deadline, but as of right now, what does the Trusts Act 2019 mean for Trustees and Beneficiaries of Trusts in New Zealand?
The Trusts Act 2019 is the first major re-write of New Zealand Trustee legislation since the Trustee Act 1956. Society has changed enormously since the late 50s: the nuclear family is increasingly the exception, not the norm, and trusteeship is now intended to protect many more complex and diverse situations than orphanhood.
Alongside the many amendments to the legislation between 1956 and the present day, Trust law has also been evolving through the courts – and while the evolution of law through common law is both a good and very necessary thing, that form of change can make the law difficult to follow and also difficult to access and understand.
One of the main aims of the Act is to fix that opacity, and although all Trust law can never be recorded in one location, it is indisputably a good outcome to have some clear expectations and obligations recorded in one place that is accessible to the public, while still allowing for the evolution of Trust law through the courts.
Many Trustees may feel vulnerable to Beneficiaries as a result of the Trusts Act 2019. However, the fundamental principle of Trust law has always been that a Trustee is looking after assets for the benefit of others and not for themselves. This can be an extremely difficult task when a Trustee is also a Beneficiary, but it can still be difficult for an independent/professional Trustee to adequately discharge all of their obligations and duties when carrying out the act of balancing all Beneficiaries’ interests.
It is fair enough that Beneficiaries should be able to obtain or be provided with sufficient information to ensure their interests are being looked after. Put yourself in those shoes by asking yourself: if I were a Beneficiary of a Trust would I feel entitled to information to ensure it is being run correctly and that my best interests are being cared for adequately? I can say for myself the answer is a resolute YES.
What does the new Act mean for Trustees? It means that Trustees must be at the steering wheel at all times. Trusts must be proactively managed; Trustees cannot sit back and merely respond to incoming requests or leap into action only for a one-off or periodic sale or acquisition of a property. There is continuous work associated with the role of Trusteeship. If a Trust is being administered correctly by a professional Trustee there will be costs attached to that, and Trustees will need to ask whether the Trust provides a sufficient benefit to warrant the cost of having it in the first place. This is an essential question – it goes to the heart of new Trust law, and Trustees should be asking it and examining their position and responsibilities well in advance of 30 January 2021. Trustees need to be ready to consider the options should the answer be NO.
Obligation nothing new
The obligation to actively manage a Trust is nothing new; it has always existed. What has changed with the Trusts Act 2019 is that the obligation is now there for the world to see. It is so clear that the difference between how a professional Trustee and a layperson as Trustee are going to be treated is likely to diminish. If you are going to act as a Trustee you must know your obligations, you must know the terms of the Trust, and you must discharge your duties and obligations without the need of the Beneficiaries forcing you to do so. Remember: Trusteeship cannot be a part-time activity, it is a job. That is an issue for both layperson trustees and professionals.
For Beneficiaries, the message is clear: you can expect more information than you may have received under old Trust law. Some beneficiaries will learn for the first time that a Trust (or Trusts) exist of which they are a Beneficiary. They will be told who the Trustees are and how to contact them. They will also be told that they have a right to request more information. Where Beneficiaries are finding out about a Trust they did not know existed, chances are that a request for further information will be made, because the basic Trust information does not give a Beneficiary even the slightest idea of what the trust holds and whether or not it is being run correctly. This means most Trustees should reasonably expect requests for further information following their provision of basic Trust information. Whether Trustees decide to pre-empt that by supplying more information upfront than just the basic Trust information will be their own decision. However, doing so could well set the stage for a more efficient and open long-term process, providing a solid foundation for a very good working relationship between Trustees and Beneficiaries.
To be clear, the provision of information to Beneficiaries should be seen as an opportunity to set the relationship between Trustees and Beneficiaries on the right foot. From a Beneficiary’s perspective, when Trustees provide more information than just the requisite basic information – without more needing to be requested – it communicates that Trustees have nothing to hide and want to be open with and helpful to Beneficiaries. In particular, people who are learning for the first time that they are beneficiaries may well appreciate the extra care and diligence taken by Trustees who want to give extra information and educate them as to their rights and the nature of the Trust.
Conversely, just because you may not take that step does not mean you have something to hide or do not want to have a good relationship with the Beneficiaries. Again, consider a question from a Beneficiary’s perspective: if you were a Beneficiary of a Trust, you requested information and that request was met with resistance, might you wonder what the Trustees don’t want you to know? Might you wonder whether something important is being withheld? This would be an understandable reaction.
The Trusts Act is a major opportunity for all in the Trustee arena. It is an opportunity to review how we are acting as Trustees, to examine how we build relationships with Beneficiaries, and to determine how we can best operate to ensure that top-level trusteeship is delivered to all New Zealanders.
Are we ready?
The difficulty with this opportunity is that it won’t expire but we may not all be ready by the time that the opportunity fully presents itself. While there seems to be a comfortably long timeline, through to January 2021, this is something of an illusion – the time for action is now. The nature of the new requirements of the Trusts Act is such that there is no reason why we can’t be fulfilling many of them now, so by January 2021 they have already been integrated as standard practice.
Now is the time for all Trustees to be taking stock of their trusts. Is a Trust the right vehicle for that particular situation? Should the Trust be varied? Do Trustees wish to retire, and if they do, do they need to be replaced? All these questions take time first to address and then to ascertain what needs to happen next and implement it. Extra time should be allowed for the appointment of new Trustees and, if necessary, upskilling them as to their obligations and the consistent work they will need to do.
Among professional Trustees, many are considering whether they wish to remain acting as Trustees in general (be it personally or through corporate trust companies). If you are in that situation it is something you need to address very soon, because there is quite a process involved. Considering and exploring your options can take some time; then you will need to communicate with Trust clients so they are informed of your thoughts and their options. Once a decision is made, implementation will also take time. Trusteeship should no longer be an add-on to a professional practice. If professionals are going to be involved in trusteeship it needs to be a major focus with active management. In short – timing is crucial and action is required now, if you want to have a clean slate by 30 January 2021.
While the Trusts Act 2019 is easy to view as ushering in a whole new, somewhat scary world, it is our big opportunity to commit to trusteeship and form open relationships with Trustees and beneficiaries. That, in a nutshell, should be the ultimate Trustee goal.
Henry Stokes firstname.lastname@example.org is General Counsel at Perpetual Guardian. He previously served as General Counsel – Retail for state-owned trustee company Public Trust and was a partner of Hamilton law firm McBreens Solicitors.
This article was originally published on by the New Zealand Law Society.