Thinking of setting up a family trust? See what the new trust legislation will change

The new trust legislation takes effect on 30 January 2021. It aims to make trusts easier to use and administer while providing mechanisms for resolving trust disputes. It is also New Zealand’s first substantial revision of trust legislation in 70 years.

What changes does the new Trusts Act 2019 introduce? What should trustees and beneficiaries consider? For readers who already have a trust, how should they review it in light of the new legislation?

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Maximum duration extended to 125 years

The new legislation extends the maximum duration of a trust from 80 years to 125 years.

This means that if your existing trust deed does not specify a duration, the trust’s maximum term will be 125 years. If your existing trust expressly has a term of 80 years or less, the deed can be varied to extend it to 125 years.

Of course, the new legislation does not mean every trust should extend its term to 125 years. Its duration depends on its assets and the size of its beneficiary group.

For example, if a trust with relatively few assets lasts too long, its beneficiary group will keep growing, potentially leaving insufficient assets to share among them.

Conversely, too short a term may bring a trust to an end prematurely. We therefore recommend discussing the duration with your lawyer before deciding. 

Beneficiaries’ right to information 

The new legislation provides clearer, more explicit rules on disclosure to beneficiaries (see sections 51–55). These include information trustees must provide so beneficiaries have enough information to monitor trustees’ implementation of the trust’s terms and performance of their duties.

The new legislation requires trustees to provide beneficiaries with basic trust information, including:

1. Confirmation that they are a beneficiary of the trust;
2. Trustees’ names and contact details;
3. Details of previous trustee appointments, removals and changes;
4. The beneficiary’s right to request a copy of the trust deed and documents containing relevant information provisions.

However, the new legislation also allows trustees to refuse a beneficiary’s request for information if, after careful consideration, they decide it should not be disclosed.

Factors trustees need to consider include:

1. The beneficiary’s position in the trust and likelihood of receiving trust property in future.
2. Whether the information is personal or commercially confidential.
3. The settlor’s wishes and expectations when establishing the trust about whether a particular beneficiary should receive the information.
4. The beneficiary’s age and personal circumstances.
5. Other beneficiaries’ ages and personal circumstances.
6. The effect the information would have on the beneficiary.
7. The effect of disclosure on trustees, other beneficiaries or third parties.
8. For a family trust, the effect of disclosure on relationships between family members and between trustees and beneficiaries; and, for a larger family with many beneficiaries, whether to provide the information to all beneficiaries or only some.
9. Trustees may also consider any other reasonable factors. This leaves them with considerable discretion.

In principle, trustees may withhold information if, after consideration, they believe it is confidential or unsuitable for disclosure to the beneficiary. Similarly, beneficiaries who want further trust information after receiving basic information can consider the factors above when assessing whether their request is reasonable. We recommend: Trustees and beneficiaries should maintain good communication about disclosure, understand each other’s aims and intentions, and avoid unnecessary misunderstandings and disputes. Trustees should generally provide basic information when that is all that is requested.

Duties trustees must observe

All trustees need to be familiar with these statutory duties. Mandatory duties are duties that every trustee must observe under the law. Some readers may act as trustees for relatives without actually participating in administration. This is dangerous. Under the new legislation, every trustee has fiduciary duties and must make decisions in beneficiaries’ interests. Being “a trustee in name only” is no excuse for avoiding responsibility for trust decisions. 

Mandatory duties (see sections 23-27 of the new Act):

• Know the terms of the trust;
• Act in accordance with the terms of the trust;
• Act honestly and in good faith;
• Act for the benefit of beneficiaries;
• Or exercise powers properly for other authorised purposes.

Alongside defining mandatory duties, the new legislation sets out trustees’ default duties (see sections 29–38). The distinction is that mandatory duties cannot be changed, whereas default duties may be modified or excluded if the settlor wishes. In particular, such changes are necessary if the trust will make numerous investment decisions and a trustee is also a beneficiary. These changes can give trustees greater flexibility in investment decisions within the limits of the law. Contact your lawyer to discuss the details.

If your trust deed does not modify the default duties, trustees must observe the following:

• A duty of care;
• A duty to invest prudently;
• A duty not to profit from trusteeship;
• Exercise trustees’ powers prudently;
• Avoid conflicts of interest;
• Act impartially;
• All trustees must agree unanimously on all decisions. 

Trustees must retain trust records 

The new legislation requires complete records of important trust information. Every trustee must retain the following core documents. Where there is more than one trustee, one may hold all trust documents, but each must hold the trust deed and records of any variations.

• The trust deed and records of variations
• Records of trust property
• Trustees’ decisions
• Written contracts
• Accounting records
• Documents appointing, removing and discharging trustees

Expert advice:

Give your trust a timely health check

With less than 6 months until the new trust legislation takes effect, we recommend that clients with existing trusts undertake a comprehensive review with their lawyer to ensure their trust continues to operate well under the new law.

We suggest the review cover:

1. What assets does the trust currently hold? Are there new assets to add?
2. Are there any gifts to complete?
3. What do I want my trust to achieve?
4. Who are the current beneficiaries? Given the new legislation’s requirement to provide basic information, are the trustees willing to do so? If they refuse, are there reasonable grounds?
5. Are the people currently administering the trust suitable? Do trustees’ duties need to change?
6. Are there any other changes I want to make to the trust?

If your personal circumstances or assets have changed since you established your trust, or it has gone unmanaged for years and you are concerned its structure may be inadequate, bring out your trust documents and undertake a health check with us. This will help ensure your trust is sound and secure, and your assets are properly protected.

 

About the authors

Joy Yuan is a barrister and solicitor of the High Court of New Zealand and a principal at Turner Hopkins. She holds degrees in law and management and an MBA specialising in entrepreneurship from Babson College in Boston.

Her expertise includes commercial law, corporate structures, shareholder agreements, trust establishment, property law, subdivisions and property transactions.

Elaine Li is a legal executive in Turner Hopkins’ commercial property team. Her work covers commercial lending, business sales and purchases, shareholder changes, commercial leases, residential, apartment and commercial property transactions, subdivisions, and easement and title registration changes. She also assists the firm’s partners with employment and commercial disputes.