07 Oct Will the new Trusts Act lead to an exodus of family trusts?
The new Trusts Act 2019 comes into effect on 30 January 2021 and there are important implications for most trusts including family trusts. The Act governing upward of 500,000 trusts in New Zealand replaces the Trustee Act 1956 which has been in place for more than 60 years. The new Act is certainly easier to read and is intended to simplify trust laws. However, there are a couple of aspects of the new Act we think settlors and trustees of family trusts need to be particularly aware of.
Firstly, the trustees have a new set of mandatory and default duties in relation to the trust.
- Mandatory duties include such things as a duty to know the terms of the trust and to act in accordance with the terms of the trust, to act honestly and in good faith, to act for the benefit of beneficiaries, and a duty to exercise powers for proper purpose.
- Default duties range from a general duty of care and duty to invest prudently through to avoiding conflicts of interest and a duty of impartiality and to act unanimously.
Every trustee should have a copy of and know the terms and conditions of the trust deed and at least one of the trustees should hold records of trust property, decisions made, contracts entered into, accounting and financial records, and other documents relating to the trust.
Secondly, the trustees have an obligation to ensure beneficiaries have sufficient information to enable the terms of the trust and the trustees’ duties to be enforced against the trustees. In this regard there is a presumption that trustees must make available to every beneficiary basic trust information. It is this disclosure to beneficiaries that is likely to be a cause of alarm for many settlors and trustees of family trusts, particularly where they have previously kept such information private.
It may be timely for settlors and trustees to review their trust and decide if the purposes for which it was established are still valid. Whilst reasons such as asset protection and estate planning may still be very relevant, other reasons such as tax effectiveness and means testing for aged care subsidies are likely to be either less relevant or no longer applicable.
At the end of the day the settlors and trustees of trusts need to weigh up the purposes for establishing and maintaining the trust against the enhanced trustee duties and requirement to disclose information to beneficiaries. If in doubt, talk to your trust specialist or solicitor. To view the new Act, click here.
By Peter Dine
The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial or legal advice.