On 30 January 2021, the new Trusts Act 2019 will come into effect, replacing the Trustee Act 1956. It’s the first major update to Trust laws in more than 70 years. The 2019 Act clarifies and modernises existing trust law providing better guidance and making it more accessible. It also promises to make it easier to resolve disputes and for beneficiaries to hold trustees to account.
New Zealand has one of the highest levels of trusts per head of population globally. The government estimates there are somewhere between 300,000 - 500,000 trusts in New Zealand. Trusts are set up for a number of different reasons including: the protection of assets (whether from creditors, future partners, or children’s partners), distribution of income, making provision for someone with a disability, or assisting with an application for government support, such as long-term residential care subsidies. While most of the new Trusts Act updates or restates existing statute or case law, there are some changes that trustees and beneficiaries of a trust should be aware of. Under the new law, trustees may face increased compliance requirements and beneficiaries need to be kept informed about the trust without needing to request information.
While there are benefits in the new Act (the maximum trust life is being extended from 80 to 125 years), there are also new obligations on trusts and trustees. If you’re a trustee, you need to start administering your trust in line with the new law from 30 January 2021.
Trustees of a trust should review the terms and the reasons they set it up originally and decide whether or not it is still serving a useful purpose. They also should consider whether or not they are willing and able to undertake the increased record-keeping and reporting obligations that come with the new Act. If not, then the trustees may want to consider winding up the trust and distributing the assets of the trust.
Before the assets of the trust are distributed, however, the trustees must consider the circumstances of all of the beneficiaries to determine who should receive assets from the trust. If appropriate, the beneficiaries should be consulted to obtain their views before proceeding. Trust assets can either be distributed to beneficiaries by utilising the right to distribute capital contained in the trust deed, or alternatively appointing an early final distribution date and distributing the trust assets on that date. If the trustees do decide to wind up the trust early, then it is essential that the trustees consult with an accountant or tax advisor to make sure there are no adverse tax consequences that may result (e.g., the forgoing of tax losses or imputation credits). Also, the Bright Line Test should be considered if a residential property is involved.
If you are a trustee and have any questions about the new legislation, please feel free to call us at Aspiring Law to talk through your options.