The Trusts Act 2019 (the Act) comes into force on 30 January 2021 and is the first major reform of trust law in New Zealand in 70 years. The new Act applies to all express trusts, including those created before 30 January 2021. It also applies to some estates, and to other trusts recognised at common law or in equity. The changes under the new Act are significant, and so it is important that anyone involved in a trust in any capacity takes steps to acquaint themselves with those changes and understand what is now required of them.
All existing trusts need to be reviewed in light of the new Act, to determine whether the trust deed needs to be amended to come in line with the new legislation and to evaluate whether it is prudent to continue with the trust against the potentially increased costs of ongoing administration. In addition, all Trustees need to take legal advice to ensure that they understand what is now legally required of them in meeting their more onerous legal obligations under the new Act, and so that they can make an informed decision about the future of the Trust, or whether they wish to continue as a Trustee.
Many of the key changes are aimed at making trust law more accessible and strengthening the ability of beneficiaries to hold trustees to account. The key areas of change are set out below.
Duties
Trustees have always been subject to duties found in legislation and the common law. The new Act classifies these duties as either mandatory or default.
Mandatory duties cannot be modified or excluded by the terms of the trust and include;
• knowing the terms of the trust • acting in accordance with those terms • acting honestly and in good faith • acting for the benefit of the beneficiaries in accordance with the terms of the trust deed • exercising trustee powers for a proper purpose
Default duties may be modified or excluded by the trust deed, subject to certain limits.
The default duties include;
• a general duty of care • a requirement to invest prudently • a prohibition on acting in the trustees’ own interests • a duty to consider the exercise of trustee powers • a duty not to fetter a trustee’s discretion • a duty to act unanimously • a duty not to profit from the trusteeship • a duty not to benefit from the exercise of trustee discretions
Retaining Information
Under the Act trustees must keep core trust documents, including the trust deed and its variations, records of trust property appropriate to the nature of that property, records of decisions, financial records, and other documents necessary to administer the trust.
Disclosure of Information
The Act requires a trustee to make ‘basic trust information’ available to every beneficiary and ‘trust information’ available to beneficiaries on request unless they have good reasons for choosing not to disclose. Trustees must consider a range of factors before deciding not to disclose information and these decisions need to be carefully recorded.
The factors to be considered include;
• the nature and interests of the beneficiaries • the intentions of the settlor when the trust was established • the effect of providing the information • the nature and context of any request for further information • other factors that a trustee reasonably considers relevant
Exemptions and Indemnity Clauses
Trustees can no longer rely on broad indemnity clauses that aim to protect them against gross negligence. Trustees may be responsible for ‘failing to act’ depending on the circumstances, where previously trustee liability was limited to acts of wilful misconduct. Trustees may still be protected from ordinary negligence if this is covered by an appropriately drafted limitation of liability and indemnity clause.
Appointment and Removal of Trustees
The statutory powers for appointment and removal of trustees have been modified to minimise the need to apply to the court.
Other Changes:
• reduction of the age of majority from 20 to 18 • codification of the rule in Saunders v Vautier (1841) where adult beneficiaries may unanimously bring a trust to an end • abolishment of the rule against perpetuities and remoteness of vesting, increasing the maximum period a trust can exist for from 80 years to 125 years • changes to the grounds on which the court may review trustee decisions • new alternative dispute resolution procedures.
Because the practice of McMillan&Co. incorporates a number of established Dunedin law firms, our client base includes a large number of trusts, and our Trusts Team is recognised for its significant expertise in this complex area of law. If you are a trustee of a trust, or you are involved in or thinking about establishing a trust, we recommend that you talk with us about how the Trusts Act 2019 will affect you.
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