It’s been around eight years in the making – and, after an in-depth review by some of the country’s leading legal luminaries, 2017 looks to be the year the much-anticipated overhaul of trust law will finally make it to Parliament in Bill form.
If you have a trust, or are a beneficiary of one, these are developments you’ll need to be aware of.
The good news is the changes are designed to make trusts clearer and easier to understand; although, in the short term, they’ll mean extra homework for trustees bringing themselves up to speed, as well as ensuring the trust’s administration will meet the requirements of the new Trusts Act when it arrives.
A bit of a history lesson …
While there had been some review of, and amendments to, New Zealand’s trust law around 2002, the Government felt they didn’t go far enough. So, in early 2009, it charged the Law Commission – the central advisory body responsible for ensuring the country’s laws are just, principled and accessible – with a broader inquiry into trusts.
The importance of ensuring the country gets trust law right can’t be underestimated – it’s thought up to half a million trusts exist in New Zealand, with around 15 percent of private homes held by trusts.
Trusts are used by all sorts of different people, for all sorts of different reasons, including families looking to protect their wealth, altruists seeking to contribute to societies through charities, businesses wanting a flexible structure, and by Māori to hold their land or provide governance for Treaty of Waitangi settlements.
To that end, it’s a complex area of the law, which goes a long way to explain why it took four and a-half years for the Law Commission to deliver its findings to the Government. The Commission’s report provided 51 recommendations addressing a wide range of matters relating to the roles of different parties involved in trusts and the powers of the courts. In all, it found the law outdated, difficult for people to understand and, in some areas, an actual barrier, rather than an aid, to getting trusts right.
The Law Commission’s views
The Commission recommended a new trusts statute be introduced which:
- Provided clear direction as to what is, and what is not, a trust
- Clarified the fundamental duties trustees owe to beneficiaries
- Gave clearer guidance regarding trustees’ rights, obligations and duties
- Made day-to-day administration of trusts easier, less expensive and more efficient
The Commission was also very keen to address the “injustice” of current laws that allow trusts to be used to avoid having to share property equally when couples separate. However, this “injustice” will not be reviewed under the Trusts Act rather it is now being explored as part of a separate review of the Property (Relationships) Act.
The consultation draft Trusts Bill, which adopted all but three of the Commission’s recommendations, was released late last year and feedback collected. The 151-clause Bill says it’s not an exhaustive code of the law, but sits alongside the rules of common law and equity relating to trusts, except where specified or where those rules are inconsistent with the provisions of the Bill.
Recommended reading
A Ministry of Justice document, A New Trusts Act for New Zealand: Exposure Draft of the Trusts Bill, provided an overview of the new legislation. It states that the intention is that the Bill won’t require existing trust deeds to be changed "because the Bill largely restates the existing law". If you have a trust, this is a document worth reading. In summary, the new legislation seeks to:
- Set out the core principles of the law relating to trusts
- Provide for default administrative rules for express trusts
- Provide for mechanisms to resolve trust-related disputes
- Enhance access to the law of trusts
It will be imperative under the new law that all trustees clearly understand their duties and responsibilities – some will be mandatory, and some will be default duties. The terms of the trust may also impose additional duties on trustees.
So, what are trustees’ mandatory duties? As a trustee, you must:
- Know the terms of the trust
- Act in accordance with the terms of the trust
- Act honestly and in good faith
- Hold or deal with trust property, and otherwise act, for the benefit of the beneficiaries or for the permitted purpose
- Exercise the powers of a trustee for a proper purpose
And trustees’ default duties?
- General duty of care
- To invest prudently
- Not to exercise any power directly or indirectly for the trustee’s own benefit
- To actively and regularly consider the exercise of the trustee’s powers
- Not to restrict the future exercise of the powers of trustees of the trust
- To avoid a conflict of interest
- To keep proper accounts
- Impartiality
- Not to make a profit from the trustee’s position as trustee
- To act for no reward
- To act unanimously
Default duties apply unless they are modified or excluded. They may be modified or excluded by the terms of the trust, but only to the extent that the modification or exclusion is consistent with the mandatory duties.
Watch this space
Of particular practical interest, I think, is the Bill’s call for an express obligation on trustees to keep specified documents. In addition, the duties of a trustee to disclose information to at least one beneficiary is set out in clauses 41 to 47 of the Bill. These provisions can’t be excluded or modified by the terms of a trust deed.
Part 5 of the Bill sets out a clear framework for the removal and appointment of trustees. Part 7 specifies certain powers of the court in relation to trusts, including giving jurisdiction to the Family Court, and also facilitating the use of alternative dispute resolution, like mediation. This is not replacing the High Court’s inherent jurisdiction, but sets out specific powers for the Family Court, which, I feel, are very important from a practical point of view and long overdue.
Submissions to the draft Bill are currently being analysed, with a report due to the Justice Minister. It’s anticipated a final version of the Bill will be introduced to Parliament sometime this year.
If you have any interest in a trust, be sure to bring yourself up to speed, and we’ll keep you posted on developments.