Trusts are a critical part of New Zealand society and the economy. It's estimated that there are up to 500,000 trusts in Aotearoa. The new Trusts Act took effect on 30 January 2021. That Act updates and improves the law governing trusts for the first time in more than 60 years. It applies to all existing trusts in New Zealand and any trust created on or after 30 January 2021.
This page provides general information about the changes for people who use trusts, such as trustees or beneficiaries. However, you may want to talk to us about what that change means for your trust.
You can see a copy of the Trusts Act here.
What the changes mean for you
In short, the basic rules of trusts are the same. The Act doesn't dramatically change the underlying law, so most things remain as they were. However, the Act explains the nature of trust and the role of a trustee in clear and modern language. Broadly speaking, the Act does increase the rights and protection of the beneficiaries while simultaneously imposing more responsibility on the trustees. While the changes have been primarily made to increase transparency, they have made more intensive administrative duties for trustees to fulfill.
For example, the Act sets out:
The key feature of a trust is to help people understand their rights and obligations
Requirements for managing trust information and expose it to beneficiaries.
Clear rules around trustee liability.
This could mean that trustees need to widen their current level of responsibility in practice. For example, the Act clarifies that trustees need to be actively involved in trust administration and that a trustee will also need to disclose information they may not have had previously proactively.
The Act makes it easier to administer trusts.
The Act encourages trustees to efficiently resolve trusts and reduce the need to proceed to court. To do this, the Act contains:
Flexible trustee powers enable trustees to manage and invest trust property in the most appropriate manner.
Clear rules for appointing a special trust advisor to advise the trust and delegating trustee powers.
Options exist to going to court to remove and appoint trustees.
Clear guidelines for changing or closing trusts.
Provisions to encourage the use of alternative dispute resolution to resolve disagreements.
New Trustee duties
The Act now clearly defines a trustee's legal obligations. There has been a change in trustees' legal obligations, such as those now considered mandatory under the Act, which the trustee must fulfill and abide by unless modified or excluded by the trust deed.
Under all duties, all trustees must:
Understand the trust's terms - this is stated in the trust deed, other trust documents, or implied in those documents.
Act in accordance with the trust's terms.
Act truthfully and in good faith for the benefit of beneficiaries or to further a permissible purpose. The majority of trusts are established for the benefit of beneficiaries. There are only a few situations where trusts can be established for a specific purpose, usually charitable trusts.
Use your abilities for a good cause.
Other trustee duties, termed 'default duties,' also apply; however, these are not compulsory and can be modified or excluded at the trust's discretion. These duties will apply unless the trust expressly states that they do not, that they have been modified, or that they imply otherwise. Trustees must comply with the following obligations:
Use all necessary care and skill in the circumstances. This is determined by the trustee's knowledge and experience, as well as whether the person is acting as a trustee in the course of their business or profession (i.e., a lawyer or an accountant)
Invest trust property with the care and skill expected of a business owner dealing with someone else's property by using appropriate powers. This also depends on the knowledge and experience of the trustee and whether they're acting in a professional capacity.
By using appropriate powers, invest trust property with the care and skill expected of a business owner dealing with someone else's property.
Actively and regularly consider whether they should exercise their powers as trustees.
Do not bind or commit trustees to the exercise or non-exercise of discretion in the future.
Avoid a conflict between the trustee's and the beneficiary's interests.
Act impartially in relation to the beneficiaries, with no preference for one beneficiary or group over another. This does not imply that all beneficiaries must be treated equally.
Making a profit as a trustee is not permitted.
They are not to accept any compensation for their services as trustees, though they may be reimbursed for legitimate expenses.
Act in accordance with each other if there is more than one trustee.
Documents trustees must hold
All trustees must have a copy of the trust deed, as well as any documents containing the terms of the trust and any amendments to the deed.
At the very least, one trustee must have the following information:
Trustee property records
Any records pertaining to trustee decisions made during the trustee's trusteeship
Any written agreements made during the trustee's trusteeship
Accounting records and financial statements were prepared during the trusteeship.
Documents that appoint, remove, or discharge trustees
The settler’s letter or memorandum of wishes
Any other documents required for the trust's administration
Any of the above documents are in possession of a former trustee and have been passed on to the current trustee.
When the trusteeship ends, the documents must be passed on to at least one new or continuing trustee.
Information trustees share with beneficiaries.
The Act establishes a presumption that beneficiaries should be provided with basic trust information. The following is basic trust information:
The fact that the individual is a trust beneficiary
The trustee's name and contact information
Details on all trustee appointments, removals, and retirements
The right of the beneficiary to request a copy of the trust terms or other trust information.
The Act also establishes a presumption that information should be made available to beneficiaries upon request. These assumptions imply that information should be accessible at all times. However, before giving out a trust information request, the trustee must consider the factors set out in section 53 of the Act. If, after doing so, the trustee believes that the information should not be made available to every beneficiary, the trustee has the discretion to withhold the information.
If you have any further questions or need to discuss the best options for you and your family, don't hesitate to reach out and book a consultation with us. You may also be thinking about whether a trust is the best way to manage wealth and assets, and that is a conversation we welcome you to have with us as experts in this subject field. We are here and ready to help you navigate efficiently through this new landscape.