NEW TRUST ACT 2019
New Trust Act 2019
Coming into force on 30 January 2021
For many years New Zealanders have had an affinity with Trusts as an ownership structure. Reasons have included protection from business activity (creditors, business compliance risk etc.), government (taxes or means testing), relationship matters or simply management of wealth to future beneficiaries.
There is limited information on the exact number of trusts in New Zealand as there is no formal requirement to record in a register like companies. However the Inland Revenue is gathering more information with all property owning trusts now requiring an IRD number to register the purchase or sale of a property.
We see more compliance and monitoring required going forward for Trust Management.
Up to now there has been limited formal legislation to govern the operation of trusts, instead previously relying more on case law decided through court cases. The new Trusts Act 2019, coming into force 30 January 2021, aims to provide legislative guidance for all parties involved with Trusts.
With the introduction on the Trusts Act 2019, it is an important reminder for everyone who has set up a Trust to review the;
- Original Trust deed and any later updates,
- Beneficiaries of the Trust, their classes and rights,
- Property held by the Trust,
- Current operation of the Trust in relation to original intentions and in relation to settlors wishes who have/will settle property on the Trust
Are the above points still applicable and relevant?
The New Act brings in the concept on Mandatory Trustee Duties and Default Trustee Duties, as well as allowing the potential extension of the Trusts life span.
Mandatory Duties will be imposed on all trustee under the legislation and can’t be contracted out of. In broad terms the Mandatory Duties require Trustees;
- to know the terms of the Trust,
- act in accordance with these terms,
- act honestly and in good faith,
- act for the benefit of the Trusts beneficiaries, or to further the purpose of the Trust
- exercise powers for proper purpose
In discussing Mandatory Duties with clients, common sense prevails with the comment, “That’s what the Trust was set up to achieve.”
Default Trustee Duties within the legislation prescribe best practice, however allow the Trustees to contract out of (allow the deed to contain terms contrary to the legislation). Trustees should address their minds to the Default Duties and where necessary expressly modify/exclude these. Examples include;
- to invest prudently,
- trustees to act of no reward,
- to act unanimously,
- avoid conflict of interest,
- trustees not to exercise power for self-benefit.
In reviewing Trusts with clients, the Default duties often need to be modified to achieve the Trusts original intention.The Life of the Trust (previously the Trust perpetuity period) can potentially be extended from 80 years to 125 years. In client discussions, this may not be a concern of the current trustees, however thought should be given about extending the life of the trust if it is intended to hold equity longer term for multi-generational asset management, or the wish to transfer wealth to the next generation via the Trust.
In summary, it is important that a review of your Trust is completed to ensure the Trust is still fit for purpose and achieves it goals within the new legislative framework.
If anyone requires assistance with Trust matters, CooperAitken have a specialist in house team focusing on Trust Administration, Trust management and recommendations for updating your trust in regard to the new legislation.
We are happy to discuss Trusts with our clients and non-clients, for a set fee. Please contact us on Trustsact@cooperaitken.co.nz
New Trust Act 2019 session
FRIDAY 31 JULY 2020
COOPERAITKEN BUSINESS CENTRE, MORRINSVILLE
PRESENTERS: Grant Eddy (Director), Rory Noorland (Director) and Megan Potter (In-house Lawyer)
|The Trusts Act 2019 comes into force on 30 January 2021 with a purpose to restate and reform New Zealand trust law. |
The Act has an aim of making the law of trusts more accessible and setting out the core principles of the law of express trusts. The Act replaces the Trustees Act 1956.
|A review of your trust and current business structure is a good first step. It is a good time to assess the relevance of your trust and whether it is achieving the purpose/s for which it was set up for. Talking to one of your professional advisors, i.e. lawyer or accountant, is a good starting point.|
Trustee duties are set out in the new Act. These duties have always ‘been there’, but now they are codified in law and so it is more important than ever that trustees know and practice their duties as trustees.
You are a trustee because you are in a position of responsibility, to hold and protect trust assets for beneficiaries. The new Act sets out ‘Mandatory Trustee duties’ and ‘Default Trustee duties’ which trustees should understand and follow. .
In considering a trustees role and administration of a trust, the below questions can be considered;
Record keeping obligations of trustees are clearly identified in the new Act. The trustees must keep core trust documents which include – trust deed and any other document containing terms of the trust, variations made to the terms of the trust, records of trust property/assets/liabilities/income/expenses, records of trustee decisions, written contracts, documents of appointment, removal and discharge of trustees, memorandum of wishes and any other documents necessary for the administration of the trust. Every trustee must hold a copy of the terms of the trust and any variations, but all others documents must be held by at least one trustee.
The new Act includes under s52 a presumption that trustees must make available basic trust information to every beneficiary. There are considerations for the trustees before providing this information and these are listed in the Act. This has highlighted the importance of ensuring appropriate beneficiaries are included in the trust. Going forward every beneficiary will be notified if they have/can/may benefit from the trust.
The purpose of this is to ensure beneficiaries have sufficient information to enforce the terms of the trust and the trustee’s duties against the trustees.
Trusts have an overarching goal of protecting assets and family wealth for future generations.
Good trust management and administration have always been an important part of a Trust. Given the greater responsibilities for Trustees, it is as important as ever to ensure your family trust is administered and managed well. Failure to do so could mean risk of the trust being challenged.
|There is no need to ‘worry’ about impending changes but trustees should be aware of these changes and be pro-active. |
This is a large law reform in New Zealand and the new legislation includes principles established in case law over many years. It is important, if you have a trust or you are a trustee, to complete a review in light of the new Act coming in to force, and ensure the trust is up to date. Alternatively the most appropriate outcome in some instances may be to wind up the trust.
We just encourage you to engage your professionals and advisors to take the time to consider and discuss overall structures and goals before decisions are made.
|Your accountant is generally a key advisor in your financial, business and family structures. We encourage you to discuss your trust and overall structures with your accountant and other advisors. Your accountant may be able to assist in a review of your trust.|
|In light of the new Act you should complete a review of your trust deed and any variations to it. Your professional advisors should be able to assist you with this review. The outcome of the review will determine if any updates or variations to the deed are required. If variations are necessary your lawyer can prepare the required documentation, provided the trust deed allows for variations. The ability to vary a trust is not always included in a trust deed (often in older trust deeds). If the updates/variations are necessary and there is no ability to vary the trust deed then consideration will need to be given to whether the trust is re-settled on to a new trust deed.|
Have another question?
If you have any questions on the New Trust Act 2019 that haven’t been answered here, you can contact our expert Trust team.