Trusts

Trusts

Whether you are wanting to protect your assets against creditors, relationship property claims or simply plan for the future generations you may wish to form a trust. We can advise you on all aspects of Trust Formation, Trust Administration and the rights or obligations of Trustees. It is essential that you receive quality legal advice in relation to any Trust structures as poor administration or management could undermine the integrity of the Trust, leaving the Trust open to potential challenges or claims against the Trustees.

To learn more contact us or read one of our articles:

• What is a Family Trust and do you still need one?
• Do you still need a family Trust

Changes to trust law in New Zealand

The Trusts Act 2019 comes into force on 30 January 2021 and is the first major trust law reform in New Zealand in 70 years.

The changes are aimed at making trust law more accessible to the general public, while also giving beneficiaries improved ability to hold trustees accountable.

We set out below an overview of the key provisions of the Act.

Application and guiding principles

The Act will apply to all trusts, including those created before the commencement of the Act.

In exercising any duty, a trustee must have regard to the contents and objects of the trust as well as the following guiding principles:

A Trust should be administered in a way that:

• is consistent with its terms and objectives; and
• avoids unnecessary cost and complexity.

Mandatory and default trustee duties

The Act sets out the core trustee duties, but now classifies those duties as either ‘mandatory’ or ‘default’.

Mandatory duties must be performed by the trustee and may not be modified or excluded by the terms of the trust.

These duties are to:

• Know the terms of the trust;
• Act in accordance with the terms of the trust;
• Act honestly and in good faith;
• Deal with the trust property and to act for the benefit of the beneficiaries in accordance with the terms of the trust deed; and
• Exercise the trustees’ powers for a proper purpose.

Any attempt to exclude a mandatory duty will be unenforceable and, if the trust was ever challenged, may be used as evidence that there was no intention to create a trust in the first place.

Default duties may be modified or excluded by the terms of the trust, subject to certain limits.

Retention of information

The Act requires trustees to keep core trust documents (i.e. the Trust Deeds, variations documents, trustee appointment and removal documents, property records, trustee minutes, contracts, accounting and financial statements, Memorandum of Guidance (essentially a will for the trust prepared by the settlor), and other documents necessary for the administration of the trust).

One trustee can hold most documents, but each trustee must hold at least a copy of the terms of the trust and any variation to those terms.

Disclosure of information

Trustees must make ‘basic trust information’ available to every beneficiary and ‘trust information’ available to beneficiaries who request it. Before providing the information, trustees must consider a range of factors and if the trustee reasonably considers that the information should not be disclosed, then it may withhold the information.

‘Basic trust information’ includes the fact that a person is a beneficiary, the name and contact details of a trustee, details about any change to the trusteeship, and the fact that a beneficiary may request a copy of the terms of the trust or ‘trust information’.

‘Trust information’ is information that is reasonably necessary for the beneficiary to have to enable the trust to be enforced.

A Trustee can refuse to provide information to a beneficiary, and the Act helpfully lists the factors which the trustees must consider when deciding whether to provide information or not.

Those factors include:

• The nature and interests of the beneficiary (including whether the beneficiary is likely to receive trust property in the future)
• The nature and interests of other beneficiaries
• The intentions of the settlor when the trust was established
• The age and circumstances of the beneficiary in question and the other beneficiaries of the trust
• The effect of giving the beneficiary the information
• The nature and context of any request for further information, and
• Any other factor a trustee reasonably considers is relevant. Trustees will have to carefully consider any decision not to disclose information.

The reasons for trustee decisions are not required to be disclosed.

Exemption and indemnity clauses

Trust deeds must not limit a trustee’s liability or provide an indemnity for dishonesty, wilful misconduct or gross negligence. Any terms in a trust deed that limit the liability of the trustee or to indemnify them in breach of these provisions is invalid.

Conclusion

The Trusts Act 2019 comes into force 30 January 2021. 

Contact us to arrange a meeting to review your trust documents, the succession plan for your trust, and to reconsider whether your trust is really necessary.