If you think that the new Trusts Act that came into effect on 30 January 2021 has nothing to do with you, think again. What if you happened to be the beneficiary of a trust without knowing it? Or what if you were eligible to inherit a small (or large) fortune without realising it? These are some of the scenarios the new law aims to resolve.
Previously, it wasn't clear what trust information should be disclosed to beneficiaries. The new law clarifies that and means that it is more important than ever for trustees and beneficiaries to know their obligations and responsibilities under trust law. If that sounds daunting, this practical checklist will help you figure out what you need to do to comply with the new Trusts Act.
Trustees must keep the interests of beneficiaries at the heart of every decision they make and generally at all times. The new legislation records compulsory duties for trustees, which cannot be changed, and they include:
- A trustee must know the terms of the trust.
- A trustee must act in accordance with the terms of the trust.
- A trustee must act honestly and in good faith.
- A trustee must deal with the trust property for the benefit of the beneficiaries.
- A trustee must exercise the trustee’s powers for a proper purpose.
So, here’s a checklist of things you should be doing if you are a trustee:
- Make sure your trust records are complete, up to date and then keep them up to date. That means keeping a copy of the trust deed along with any amendments to the trust and written records of any decisions made that affect the trust and its beneficiaries.
- Keep written contracts of any transactions related to the trust.
- Create and approve financial statements and accounting records.
- Start, or continue, with regular trust meetings, formally reviewing the activities of the trust.
Some of the things to consider in a trust meeting include:
- Review what assets the trust owns and decide if those holdings remain appropriate;
- Make sure insurance is up to date;
- Document any loans and financial obligations;
- Review and approve tax returns and financial statements; and
- Review any arrangements for people living in trust properties.
- Discuss what information to provide to beneficiaries, considering the needs of the beneficiaries in a wider sense. First consider the trust position and ask the question: Do beneficiaries need to be told? There are some exceptions relating to: personal and/or commercial confidentiality; the age and circumstances of beneficiaries; the effect on the trustees and the beneficiaries if information is provided, or not provided; the effect on family relationships and the relationship between the trustees and beneficiaries; and the practicality of actually providing the information.
- Make a decision on notifying beneficiaries about the basic information. The Act states that trustees must provide certain "basic trust information" to every beneficiary. This means trustees should voluntarily disclose:
- The fact that a person is a beneficiary of the trust;
- The name and contact details of the trustees; the occurrence of, and details of, each appointment, removal, and retirement of a trustee as it occurs;
- The right of the beneficiary to request a copy of the terms of the trust and further information about the trust.
- Other information provided could include details of assets and liabilities, a set of accounts, trust minutes, and information on distributions.
- If a beneficiary requests information about the trust, that information must be provided by the trustees in a timely manner.
- Review your decision about informing beneficiaries and record what you're doing.
Before the changes, many trusts existed that beneficiaries weren’t aware of, and that may well have been what the people setting up those trusts wanted. However, there can be benefit in sharing information and now the law facilitates that information sharing in a formal way. It means that people have had to have conversations that perhaps they would otherwise not have made time to have and, in most instances, that is a good thing.
A few have wound up their trusts because of the changes in law and because the trust is no longer needed for the purpose for which it was established. However, most people set up trusts for genuine, enduring reasons — commercial or family — and those reasons still exist even with the new trust law. That makes it really important that each trust is considered on a case-by-case basis. So, if you hear about someone winding up their trust and are tempted to think “I should wind up mine too”, just pause and head in the direction of your advisers as one situation is not necessarily like another.
Janice Hughes is a Director of, and senior legal adviser at, Aspiring Law. Please remember, this information is designed as a general guide, and should not replace specific legal advice on a particular issue.