March 14 2017
Last December, the draft Trusts Bill was released for public consultation. Resulting from recommendations in a Law Commission report, the new Trusts Act will replace the Trustee Act 1956 if passed and become the primary source of trust law in New Zealand. Here is an outline of the key proposals and changes.
What types of trusts will be affected?
The majority of trusts are established with a trust deed or other document such as a will. These are known as express trusts. Common examples are family trusts, business trusts and protective trusts. A trust lawyer can assist you with more information, but here are the characteristics of trusts which would be governed by the Trusts Act.
- Any relationship between a trustee and a beneficiary where the trustee holds or deals with property for the benefit of the beneficiaries or for a permitted purpose.
- Where a trustee holds or deals with trust property in an identifiably separate way to their own property.
- Where a trustee has a duty to hold or deal with trust property in accordance with the terms of the trust and their legal obligations.
- Where a trustee is accountable for carrying out the duties set out in a trust.
While these characteristics have already been established in New Zealand case law, the proposed Trusts Act will also contain them. If you’re a trustee, this is a timely reminder that trust property should be managed separately from your own, in accordance with the trust deed and for the benefit of the trust’s beneficiaries.
Trustees will have mandatory duties
The Trusts Act proposes a number of mandatory duties for trustees which cannot be excluded or modified by a trust deed. Trustees will have to:
- Know the terms of the trust
- Act in accordance with the terms of the trust
- Act honestly and in good faith
- Hold trust property
- Act for the benefit of the beneficiaries or the permitted purpose
- Exercise trustee powers for a proper purpose
Trustees will also have default duties which can be excluded or modified by the trust deed. For example, a trustee has the default duty not to use a trust for self benefit or to act where there is a conflict of interest. However, a trust deed can allow a trustee to act in their own interest.
Many trust deeds specify situations in which a trustee can act in their own interest, such as when a trustee is also a beneficiary. Again, if you’re a trustee, this a good reminder to know know the terms of the trust and what you can or can’t do.
Many of these duties follow current case law, but there is a warning here for non-professional trustees with the requirement to be familiar with the terms of the trust. Trustees will have to fully understand their duties and will be obliged to retain copies of trust documents, which is a practice some professional trustees don’t adhere to at present.
A new process for disclosure
The draft Bill includes a process for disclosure of trust information. This includes the trust deed, documents relating to the property and administration of the trust, and other information necessary to hold trustees accountable.
The process requires trustees to notify all people who are qualifying beneficiaries. If requested, a trustee must provide trust information to a beneficiary within a reasonable time. Trustees can only withhold information in certain circumstances.
A qualifying beneficiary is a person who the settlor intends to have a realistic possibility of receiving trust property. While trustees will have some flexibility with disclosure, the Bill favours keeping beneficiaries informed.
There are other proposals contained within the draft Bill, so our trust lawyers will keep you up-to-date as the Bill progresses through government. Contact our trust lawyers if you have any queries about your will or trust.