What do Peter Jackson’s film The Lord of the Rings: The Return of the King and the new Trusts Act 2019 have in common? They’re both around 17 years old!
After going through numerous draft phases and consultations in the previous two decades, the then-Bill achieved Royal Assent on July 30, 2019 with the new act comes into effect 18 months after that date. So on 31 January 2021 the Trusts Act 2019 (Act) will apply to existing trusts in New Zealand and all newly established trusts.
The new Act will simplify trusts law and translate matters previously handled by the court under common law into straightforward legislation.
So, what are some of the specifics of the new law?
Benefits for beneficiaries
To date, trustees had no legal requirement to keep beneficiaries informed about the trust, or report on their activities. The Act will now firm up some improved requirements to provide information to beneficiaries unless there is good reason not to.
Another positive to come from the new Act is that trustees can refer disputes to an alternative dispute resolution process like mediation or arbitration, instead of the court. Presently, even a minor dispute often meant circling a date in the calendar for attending court and budgeting for legal fees to help work through the court process. Now such issues will be able to find resolutions through an alternative to court if the parties want to.
The Act also alters the maximum lifespan of a trust from the usual 80 year term to 125 years. For those that think that is rather a long time the ability to specify or imply a shorter term is still allowed.
Setting trustee responsibilities in stone
One of the primary purposes of the Act is to give greater clarity on trustees’ duties and responsibilities.
Currently, there seems to be a lack of general understanding around what being a trustee actually means, and what trustees have to do. That lack of awareness can translate into somewhat haphazard implementation of trustee duties and responsibilities and can lead to rather unhappy beneficiaries at times. The only recourse, at present, to address perceived unacceptable behaviour is on a case-by-case basis through the High Court.
The Act seeks to change that by stipulating the duties that trustees have when they sign up to their role. The duties are divided into two distinct parts – the mandatory ones and the default ones.
The five mandatory trustee duties that have to be performed by trustees cannot be changed or excluded by the trust deed. The mandatory duties say that trustees need to:
1) Know the terms of the trust
2) Follow the trust’s terms
3) Act honestly and in good faith
4) Use their powers for a proper purpose
5) Act for the benefit of the beneficiaries or to further permitted purposes of the trust.
There are also 10 default duties noted in the Act that can be changed by the trust deed. Those duties are:
1) A general duty of care
2) Investing prudently
3) Not exercising powers for a trustees own benefit
4) Avoiding conflicts of interest
5) Acting impartially
6) Not profiting from the role as a trustee
7) Acting unanimously as trustees
8) Not being paid as a trustee
9) Not committing trustees to future decisions
10) Actively and regularly assessing whether trustee powers should be exercised.
File the Records
Trustees will also need to comply with minimum requirements for record-keeping and document retention, depending on the activities and investments of the trust. That might mean a bit of ferreting around for paperwork and a bit of filing being needed for a number of trusts in order to comply. That might take a little time so thankfully trustees have the 18 month transition period to cover this off.
These points may seem like a minimum expectation - but formalising trustees’ duties and record keeping is a great step.
What you need to know
All in all, altering the Act to improve clarity around trustee responsibilities and trust structures is a no-brainer. Beneficiaries will be able to receive information on trust activities more easily, giving them greater insight into how trustees manage the trust. Trustees, meanwhile, will be better informed on the key features of their role before agreeing to take on the responsibility which should mean less surprises about what is involved.