What is the new Trusts Act 2019 all about and why can trustees no longer bury their heads in the sand?
The Trusts Act 2019 (Act) came into force on 30 January 2021 and represents significant trust law reform in New Zealand. While the key purpose of the Act is to modernise and clarify existing trust law, numerous law changes have also been implemented which will apply to the majority of trusts (including charitable trusts) in New Zealand.
Trusts are a very common asset holding vehicle in New Zealand with an estimated 300,000-500,000 trusts currently in existence. However, if you were to ask the trustees of those trusts to summarise what their duties as trustees are and who those duties are owed to, we expect few would be able to accurately do so. And that is the point of the Act – to assist trustees in understanding what they need to do and how they need to do it and to enable beneficiaries to hold trustees to account if they don't follow the rules.
In line with the trustee accountability rationale of the Act, the Tax (Income Tax Rate and Other Amendments) Act 2020 has also been enacted, which provides the Inland Revenue Department with new information gathering powers for trusts. Trustees of certain income generating trusts will now be required to disclose financial, distribution, settlement, and identity information.
Put simply, when it comes to acting as a trustee of a trust, ignorance is no longer bliss.
So what are my obligations as a trustee?
The starting point in terms of trustee obligations is that your role as a trustee is fiduciary in nature – in other words, you must act in good faith, hold all trust assets on trust for all of the beneficiaries of the trust (not just the beneficiaries who may have established the trust) and in the best interests of those beneficiaries at all times.
Trustees are accountable to the beneficiaries of the trust and are increasingly subject to scrutiny and attack by disgruntled beneficiaries (including children or grandchildren unhappy with trust decisions and aggrieved spouses) as well as from third parties, such as creditors and the Inland Revenue Department. The best form of protection against such attacks is to ensure that the trust is properly administered in accordance with the requirements of the Act.
What are the key provisions in the Act that I need to know about as a trustee?
- Codifies exactly what duties you owe to the beneficiaries of the trust in the form of mandatory duties (which cannot be modified or excluded by the terms of the trust's deed of trust) and default duties (which can be modified or excluded, to the extent permitted by the Act, by the terms of the trust's deed of trust). Most trustees will need legal advice to determine whether the terms of the trust's deed of trust comply with the mandatory duties and the extent by which the terms of the deed of trust modify the default duties in the Act – this is important to ensure trustees are clear on what their duties are and allow for consistent decision making going forward
- Requires you and your fellow trustees to notify every beneficiary of certain basic trust information and to provide additional information (if requested by a beneficiary) unless the trustees, after taking into account certain factors set out in the Act, reasonably consider that the information should not be disclosed. This requirement does not apply to charitable trusts however
- Restricts you and your fellow trustees from being indemnified from trust assets or enjoying the benefit of limited liability in circumstances arising from your dishonesty, willful misconduct or gross negligence
- Requires you and your fellow trustees to keep certain documents (such as the trust deed, variations to the trust deed, records of trust property, written records of trustee decisions and accounting records).
How can we help?
Buddle Findlay has a dedicated private wealth team who can assist you in fully understanding your obligations as a trustee and provide all important guidance in light of the Act. We also have a trustee company which can be utilised to act as an independent trustee of your trust.