The Power of Trust(s)... Time to Review Your Arrangements.Posted on April 23, 2020 in Trusts , Private Client (Tags: Trusts)
It is estimated that there is approximately one trust for every twelve people in New Zealand, the highest per capita in the world. Many of these were initially established in the 90s to circumvent the then rigorous means testing for rest home care subsidies, offsetting tax, and to offer asset protection against creditors. Many of these trusts were rapidly set up with little care taken to ensure they are still fit for purpose as our laws have evolved. This can cause major headaches once the trust’s purported ‘protection’ is attempted to be enforced.
The Trusts Act 2019 was given the royal assent on 30 July 2019 but will take effect as law in New Zealand from 30 January 2021. You might be asking what this means for your family trust? Will it still offer you the protection you set it up for?
The Trusts Act 2019 aims to set out the core principles of the law relating to trusts, provide default rules for their administration, provide mechanisms for trust related disputes and make trust law more accessible. The main changes made to New Zealand trust law include setting out duties for trustees, increasing the rights of trust beneficiaries to trust information, increasing the duration of trusts from 80 years to 125 years and simplifying the process for removing a trustee who has lost capacity, a growing reality for many family trusts.
In terms of what might change for you, there is a requirement for all trustees to hold specified documents that relate to the trust. These include the trust deed and any variations of the trust deed. If there is more than one trustee, at least one of the trustees must also hold records of trust property, records of trustee decisions and any accounting records among others and inform the other trustees where these are kept. If our firm acts as your independent trustee, we would hold these at our offices.
Duties for trustees have been grouped into mandatory and default duties. Mandatory duties are those that every trustee must abide by and include duties to;
- know the terms of the trust and to act in accordance with those duties;
- act honestly and in good faith;
- act for the benefit of the beneficiaries or the purpose of the trust; and
- exercise powers for the proper purpose.
Default duties are those that must be performed by the trustees unless modified or excluded. Any adviser to the trust must alert the settlors of that trust if any of these duties have been modified or excluded. These duties include a general duty of care and duties to;
- invest prudently;
- not to exercise power for own benefit;
- to consider exercise of power;
- not to bind or commit trustees to further exercise of discretion;
- avoid conflicts of interest,
- not to profit; and
- act unanimously.
Previously, there was no duty to provide beneficiaries with information relating to the trust. The new Act creates a presumption for trustees to ensure that beneficiaries have sufficient information to understand the terms of the trust and to enforce the trustee duties. The Act also provides frameworks for where this presumption might not be the right choice for your trust.
Currently, if your trust has no provision for replacing or removing trustees who have lost capacity, your options are very limited and may include a costly application to the High Court. The new Act, in the absence of any trust provision authorising the appointment or removal of trustees, authorises a validly appointed property manager or a person who holds an enduring power of attorney in relation to property of the mentally incapable trustee.
The Act was passed by Parliament on 30 July, but trusts have until 30 January 2021 to become compliant with the new law. Now is the perfect time to review your trust to ensure that it will be complaint with the Trusts Act. It could also be a good time for you to consider whether a family trust still suits your needs.
If you have any questions about the Trusts Act and specifically about your trust, please do not hesitate to contact us.