Do you have a Family Trust or are you a Trustee? – Important changes Imminent!

 

-This is by courtesy of GML Lawyers Limited-

 

 

To our valued clients

 

We hope you and your families have been well and keeping safe over the last few weeks of turbulent, unprecedented times. As we begin to settle into normality again, we thought it would be prudent to let you know of the major changes coming our way surrounding the law of trusts in New Zealand. 

 

 

As you may be aware, the existing Trustee Act 1956 will be replaced by The Trusts Act 2019 (‘the Act’), which comes into force on 30 January 2021. 

 

The new Act will apply to all existing and future trusts in New Zealand, which makes it relevant to you. It primarily serves as a restatement and clarification of existing trust law, in a way which modernises the outdated and often-confusing old Act. Its purpose is to make trust law simpler, more transparent, and more accessible to the general public.

 
Overall, the Act:

 

  • Increases compliance requirements imposed on trustees;
  • Improves beneficiaries’ access to information;
  • Requires much higher levels of transparency around trust activity; and
  • Increases the scope for beneficiary claims against trustees and professional advisors.

 

Trustees in particular need to ensure that they understand the key features of the Act and discuss their obligations with their advisors in order to avoid any potential legal ramifications. 

 

 

 

“How does this affect me?” 

  • As a trustee, there will be increased compliance requirements and all trustees will be required to contact beneficiaries and supply them with basic trust information. Trustees should seek professional advice and consider what they need to do to prepare for the changes that will take effect in early 2021.
  • As a beneficiary, the trustees of any trust you are a beneficiary of will be required to notify you of that fact and provide you with basic trust information at regular intervals without you needing to request it. Generally, information can only be withheld in exceptional circumstances.

 

“What does this mean for my trust?” 

  • Trusts are commonly used in estate planning. They provide an excellent option for managing assets under the right circumstances. However, greater compliance duties will increase the time, cost and effort of administering some trusts, meaning some may no longer be cost-effective.
  • Increased transparency and disclosure requirements will put things in the open that some trust owners might prefer to keep private.

 

A summary of the key changes in the Trusts Act 2019: 

 

  1. Age of majority: The age of majority is now 18 (rather than the current age of 20).
  2. Life of trust: The maximum life of a non-charitable trust is extended to 125 years (currently 80 years).
  3. Mandatory duties: Trustees now have mandatory duties, which cannot be modified or contracted out of. There are 5 in total. As a trustee, you must be aware of these duties and adhere to them or risk facing personal liability if you fail to meet your obligations.
  4. Default duties: Trustees also have default duties, which are optional and can be varied by the trust deed. Unless specifically dis-applied or varied, they will apply by default. If any of the optional duties for trustees are to be varied by the trust deed, the advisor who advises on or prepares the trustee deed (usually a lawyer) must point this out to the settlor.
  5. Exemption and indemnity clauses: There is a limit on trustee exemption and indemnity clauses. Exemption or indemnity clauses can be included, but they cannot protect a trustee from liability arising out of dishonesty, wilful misconduct or gross negligence. If it purports to do this, the clause will be struck down as invalid.
  6. Core documents: Trustees must keep core documents and retain them for the duration of their trusteeship. This includes but is not limited to the trust deed, any variations to it, a list of the trust’s assets and liabilities, records of decisions, financial statements, and letters or memoranda of wishes. At the end of one’s trusteeship, these documents must be handed over to replacement trustees.
  7. Provision of basic information: Trustees must make available to every beneficiary (or their representative) the basic information relating to the trust. “Basic information” is defined in section 51.
  8. Provision of other information: If a beneficiary (or their representative) requests for specific trust information, this information must be made available to the person requesting it within a reasonable time. However, if the trustee deems the information should not be provided after considering the factors set out in section 53, then the presumption will not apply and the trustee can refuse the request for information.
  9. Retirement and Removal: A trustee who wishes to retire must seek a discharge in writing from the person with the power of removal. A trustee is not discharged from liability simply from notifying the other trustees of their retirement.
  10. Review of trustee decision: Beneficiaries can now apply to the court to review trustee decisions on the ground that the decision was “not reasonably open to the trustee in the circumstances” to make. If the beneficiary can establish a “genuine and substantial dispute”, the onus shifts to the trustee to establish that their decision WAS reasonably open in the circumstances.

 

 

 

OUR RECOMMENDATIONS:

 

If you are a trustee, beneficiary or owner of a trust, you need to make sure you are familiar with the new Act before it comes into force on 31 January 2021. You might want to consider the following: 

 

  • Are you willing and able to undertake the increased obligations?
  • Are you comfortable with the higher levels of transparency and providing information to beneficiaries?
  • Are the reasons you set up the trust still relevant?
  • Will the trust still offer the same level of protection as before?
  • Will the trust remain cost-effective with the added compliance requirements?

 

If you have any queries or seek further clarification on these new laws, please do not hesitate to approach one of the team at GML Lawyers and seek our advice. We want to ensure all our clients are achieving their optimum desired results with the highest levels of personal protection that can be afforded.

 

 

 

 

-This is by courtesy of GML Lawyers Limited-

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