Trusts have historically been a very popular tool for family asset management and planning in New Zealand, with the Government estimating there are currently between 300,000 and 500,000 Trusts here.
However, major changes are coming: The Trusts Act 2019 was passed on 30 July 2019 and it majorly alters the Trust Law regime in New Zealand for Trustees, Beneficiaries, and prospective Settlors.
The changes do not come into force until 30 January 2021, but it is important to be prepared.
If you are a Trustee, you will have increased compliance requirements and duties. If you are a Beneficiary, you will have more robust rights. And if you are thinking about setting up a Trust, you may want to seek further advice before deciding if a Trust is the right tool for your requirements.
If you are a Trustee
The Trusts Act 2019 was passed on 30 July 2019 and it makes changes to the trust law regime in New Zealand. Specifically, as of 30 January 2021, Trustees will have significantly increased compliance requirements and duties, whilst beneficiaries will have increased rights to access Trust information.
Specifically, the new legislation creates “mandatory duties” for Trustees that cannot be modified or excluded (i.e. the Trust Deed cannot exclude Trustees from these duties).
These mandatory Trustee duties are:
- A duty to know the terms of the Trust;
- A duty to act in accordance with the terms of trust;
- A duty to act honestly and in good faith;
- A duty to act for the benefit of the Beneficiaries, or to further the permitted purpose of the Trust in accordance with the terms of the Trust; and
- A duty to exercise Trustee powers for a proper purpose.
The new legislation also establishes “default duties” for Trustees. These default Trustee duties include:
- A general duty of care;
- A duty to invest prudently;
- A duty not to exercise a Trustee power for one’s own benefit;
- A duty of impartiality.
Unlike the mandatory duties, the default duties can be modified or excluded via the Trust Deed. However, if a Trust was established prior to the passing of the new Act, it is unlikely that all of these default duties were appropriately dealt with. If you have a Trust established before the passing of the new Act, updating your arrangements may be advisable.
If you are a Beneficiary
The new legislation also gives increased rights to Beneficiaries.
Specifically, pursuant to Section 47 of the new Act, a Trustee “must make available to every beneficiary the basic trust information” so that the Beneficiary can ensure the Trustees are complying with their obligations and the terms of the Trust.
This includes Trustees’ being required to let them know they are a Beneficiary, providing up-to-date contact information of the Trustees, and advising them that they can request a copy of the Trust Deed and related documentation (including financial information).
What the new Trusts Act means for you
Every Trust is different, and these rule changes are going to affect different Trustees, Beneficiaries, and prospective Settlors in different ways. However, the ultimate takeaway is that your obligations or rights in relation to the Trust you are involved with, or planning, will change on 30 January 2021, and that these changes should be taken seriously – they are not minor.
We at Focus Law can help you – if you already have a Family Trust, we can review your Trust Deed and help you get ready for the changes. If you are an existing Focus Law client, we will charge you $300 + GST for an initial review. If changes are needed to the deed or if you would like an more in-depth understanding of the changes, we can talk further.
We can put our heads together and decide whether your trust will continue to work for you in the way you intend/intended. We will also work with you to figure out the best avenues from here for your Trust, or your alternative options.
If you are considering establishing a Family Trust to protect your assets, we can advise you on the best routes to achieve your goals and guide you through the process of establishing a Trust, if necessary.