If you’re a trustee, there are some things you should know before changes come into force in 2021. Some long-awaited changes to the law of trusts in New Zealand have finally been made with the introduction of the Trusts Act 2019.
The new law is intended to:
The new law generally achieves these objectives, but it’s more of an evolution rather than a revolution in the law of trusts in New Zealand.
Some commentary suggests the new law imposes more onerous duties on trustees than currently exist under the law. For the most part this is misconceived and the basic duties and powers contained in the new law already exist. Problem is, they’re not well known or properly applied in New Zealand.
The new law specifies two types of trustee duties in the form of mandatory trustee duties and default trustee duties.
Mandatory trustee duties include:
Default trustee duties (which can be modified or excluded by the terms of a trust) include:
One of the reasons for some of the concerns expressed by commentators is that the new law highlights some significant issues for the trustees of trusts in New Zealand.
The trust industry in New Zealand is unregulated and unsophisticated and, as a result, the quality of governance and administration of trusts is often well below the standards of other countries. It’s these poorly governed trusts that the new law is targeted towards, but it will result in a higher level of scrutiny on all trusts. This scrutiny is, however, no greater than would be expected in many other countries.
Disclosure of information
The most controversial aspect of the new law is the obligation to make available ‘basic trust information’ to beneficiaries. In New Zealand it’s common for not all (or sometimes any) beneficiaries to be properly engaged with trustees and often beneficiaries are unaware of trusts under which they may have an interest. As a general principle, the new law requires there to be at least a basic level of reporting to all the adult beneficiaries and to the parents/guardians of all the minor beneficiaries.
This is somewhat controversial in a New Zealand context, because most domestic trusts are governed by people (including many lawyers and accountants) who are not well versed in the law relating to trusts. As a consequence, trusts are often governed with the interests of the class of beneficiaries as a whole being subordinate to the interests of the people who set up the trust. This is plainly incorrect and the new law is intended to raise standards of governance and administration to levels similar to those high standards that have been applied in certain other countries for many years.
The most significant changes to the law of trusts in New Zealand also include:
The new law comes into force on 30 January 2021. People who’ve set up or are beneficiaries or trustees of trusts and their advisors have the benefit of a transition period.
Given the vast amount of wealth in New Zealand held in family trusts and the risks associated with being a trustee, it’s very important that good advice is taken to make certain trusts are compliant and optimised.
In some situations, this may require changes to the terms of trusts (if possible) and/or the current modus operandi for governance and administration.
This article first appeared on MYOB and can be read here.