The new Trusts Act came into effect on 30 January 2021 and if you’re a trustee or a beneficiary of a trust and haven’t reviewed your trust documents recently, you need to get onto it.
New Zealanders are estimated to have the highest number of trusts per capita in the world. The number is estimated to be up to 500,000 trusts, or one for every ten people. The new Trusts Act is a major shakeup of trust law and imposes new obligations on trustees and beneficiaries that they need to be aware of.
Beneficiaries in kind
Typically, some beneficiaries don’t even know they are named in a trust. Parents often set up a trust when they start a family but neglect to tell their kids when they grow up. They may not want their offspring to know how wealthy, or otherwise, they really are. After all, if it wasn’t for those pesky kids…just joking kids!
Parents often treat a trust like it is their own personal slush fund with no regard for the beneficiaries. Their kids don't know any better and they don't ask any questions because in a lot of families, trusts and wills are the parent’s responsibility.
The new Act basically says trustees can’t keep their trust a secret anymore. There is a new onus on trustees to keep a register/contact details of beneficiaries, to advise beneficiaries if they are named in the trust and to provide basic trust information to those beneficiaries. Beneficiaries have a right to know if they are beneficiaries of a trust and to request trust information.
One of the key changes in the new trust law is around who has a right to request trust information and what information must be provided. The Trusts Act creates “a presumption that a trustee must disclose “basic trust information” to every beneficiary and “trust information” to beneficiaries who request it.” Basic trust information includes:
- the fact that a person is a beneficiary;
- the name and contact details of a trustee;
- the occurrence of, and details about, any change to the trusteeship; and
- the right to request a copy of the terms of the trust and trust information.
“Trust information” is information about the terms of the trust, the administration of the trust, and the trust property that is reasonably necessary for the beneficiary to have the trust enforced. Although the word presumption is used in the Act, it is essentially a requirement with the onus on the trustees to make sure it happens. This was also the case in the previous Act but it wasn't as explicit.
What information to disclose
The presumption in the Act regarding provision of information places an obligation on trustees to consider a range of factors set out in the Act before supplying any information. The list of relevant factors includes:
- the nature of the beneficial interests;
- whether there are any issues of personal or commercial confidentiality;
- the expectations of the settlor;
- the age and circumstances of the beneficiary;
- the nature and context of any request for information;
- the effect of giving the information, including the effect on relationships within the family and relationships between the trustees and beneficiaries; and
- the practicality of giving the information or imposing restrictions or safeguards.
The trustee does not need to treat every beneficiary the same. The Trusts Act permits the trustee to withhold information from a particular beneficiary or class of beneficiaries if this is reasonable upon considering the required factors. It may, therefore, be permissible for the trustee to disclose more information to some beneficiaries with vested interests compared to discretionary beneficiaries.
If the trustee considers that information should not be disclosed, then they may withhold the information. The danger is they might end up in court and because this is such a new law, there is some uncertainty around how courts will deal with a failure to disclose information.
Either way, every trust should put processes in place around providing information to beneficiaries. Complete record-keeping is essential for good trust administration and the Trusts Act should provide a useful wake-up call to trusts and trustees who have been slack in recording and retaining trust information. Trustees are personally liable for their actions (or inaction) regarding their trust but good record-keeping might protect them if things turn sour.
Who’s in, who’s out?
Some trusts are bloated with too many family members added as beneficiaries with no real thought given to the process. Given the new obligations and rights of beneficiaries, it is advisable to review exactly who should benefit from the trust. Another option is to update trust deeds to allow for exclusion or to insert a clause regarding the provision of trust information. A complete review of your trust is a good idea to ensure you are adhering to the new trustee duties and that you are not breaching them accidentally.
At Aspiring Law, we’ve reviewed all our trusts and sent out a letter advising trustees they needed to update their trusts. Some trusts have got back to us to make the necessary changes, but a lot more haven’t. If you’re in any doubt then get in touch with us to review your trust. Get it sorted.