1. Home
  2. Changes to the Trust Act – Appendix 1

Changes to the Trust Act – Appendix 1

History of Trusts

  • Original idea of trusts came from the Crusades
  • Before going into battle, a soldier would ask his neighbour to look after his property and his family for him if something happened while fighting
  • Trust law takes a long time to change
  • Trust legislation was last amended in 1988, but the Law Commission has been reporting on recommended changes since 2002
  • Common law (i.e. case law) tests the boundaries of the legislation
  • The new Act will come into force in January 2021

 

Purpose of the Act

  • To make Trust law accessible and understandable
  • Previous trust legislation was laborious and hard to understand from a layman’s perspective

 

Evolution not Revolution

  • The new Act does not reinvent the wheel
  • As with other types of law (i.e. tenancy law), the law is evolving in the direction of favouring the tenant. Trust law is evolving more in favour of the beneficiary
  • More responsibility for trustees
  • Greater accountability to Beneficiaries
  • Keep in mind that the changes should be viewed as best practice.

 

Trustee Duties

  • The new Act divides trustees’ duties into two types:
  1. Mandatory duties that you cannot contract out of; and
  2. Default duties that apply unless stated otherwise in the trust deed

 

Mandatory Duties of Trustees

  • Understand the terms of the trust deed – many people are not aware of what is in their trust deed and what their duties are as trustees
  • Act in the best interests of beneficiaries – you need to know who the beneficiaries are to be able to act in their best interests
  • Act honestly and in good faith
  • Exercise powers for proper purpose (i.e. if the trust deed prevents the removal of beneficiaries, not using a power of variation to remove beneficiaries)
  • Account to the beneficiaries
  • Personal liability – you cannot contract out of personal liability as a trustee (i.e. payment of rates, IRD). However, the bank will generally limit trustees’ liability to the assets of the trust

 

Default Duties of Trustees

  • Impartiality – i.e. treat all beneficiaries of the same class even-handedly
  • Unanimity (vs Majority rules) of Trustees – if majority of trustees can make decisions and you don’t agree, you are still bound by decisions of the majority. We recommend:
  • Not to profit from the Trust (trustees are to hold the assets on trust for the benefit of the beneficiaries, not for themselves)
  • Invest prudently
  • Retain core documents
  • Act for no reward – if you want to pay your trustees, your trust deed needs to specifically state this, otherwise they cannot be remunerated

 

Investing Prudently

  • Section 30 of the new Act
  • Very high onus on trustees to invest prudently (i.e. having a wide investment portfolio) as if investing property for someone else. If a lawyer or accountant, the trustee must act as if they are investment advisors.
  • You can contract out of this in the trust deed.

 

Rights of Beneficiaries

  • Obligation on trustees to let Beneficiaries know they are Beneficiaries
  • You can contract out of this but need specific wording in the trust deed
  • Beneficiaries need to know who the trustees are so they can hold them to account and obtain information from them
  • Important to consider the class of beneficiaries and narrow this if need be
  • e. distant family members as beneficiaries

 

Importance of Record Keeping

  • If a beneficiary challenges something the trustees have done, you need to have the records to defend it
  • Retain documents for the life of the trust. If you resettle the trust onto another trust, you should retain the documents from the original trust
  • Importance of trustee meetings – so you can show you have carried out your duties as a trustee properly
  • Best practice for trustees

 

What information can a Beneficiary get?

  • Copy of the trust deed and any amendments (i.e. deeds of variation)
  • Records of assets and liabilities
  • Income and expenditure (trust financials)
  • Information regarding the administration of the trust
  • But not Trustee reasons in relation to Beneficiaries distributions

 

What do Trustees need to consider?

  • Wishes of the Settlors
  • Effect of giving information
  • Practicality of giving information
  • Other relevant considerations
  • Make it clear in the trust deed what information you are prepared to provide to beneficiaries and what you are not

 

Incapacity and Trusts

  • Loss of capacity of trustees – many trust deeds do not provide for what happens if a trustee loses capacity
  • The new Act makes it compulsory to remove incapacitated trustees – previously this would have required an application to the court for a vesting order
  • Enduring power of attorneys are not relevant to trusts – you cannot appoint an EPA and have them act for you in relation to your trustee powers

 

The Life of a Trust

  • Previously, Trusts could last for a minimum of 80 years
  • If you resettled a trust, it could last only for 80 years from the start date of the original trust
  • The new Act removes all reference to “perpetuity period”
  • Trusts can now last for 125 years