A NEW DAY HAS DAWNED
April 9, 2021
The 30th January 2021 saw an important piece of legislation introduced into New Zealand Trust landscape, affecting the rights and obligations of Settlors, Trustees and Beneficiaries. This new Act, known as the Trusts Act 2019, sees Trustee accountability rise as it imposes legislative duties and attracts high liability for non-compliance.
TRUSTEESHIP ISN’T FOR THE NAIVE – CONSEQUENCES OF THE NEW ACT
Some of the duties Trustees must satisfy under the Act are compulsory (mandatory duties) whilst others are able to be amended and even contracted out of (default duties). Through the passing of this legislation, Beneficiaries should find it easier to hold Trustees to account for their behaviours be it positive actions they’ve taken or omissions they’ve made. Accordingly, I believe a consequence of the Act is Trustees are faced with increased responsibility and compliance obligations. Correspondingly, the potential liability associated with holding the role of a trustee has risen.
THE BIG NEW DUTY
A specific mandatory duty all trustees must deal with revolves around disclosure to Beneficiaries. Under the Act, Trustees must now inform parties they are Beneficiaries of the Trust and provide them with the contact details of the Trustees. Additionally, Trustees must advise all Beneficiaries they have a right to request a copy of the Trust Deed and other Trust Information. Whilst ‘other Trust information’ is yet to be judicially defined, it could include for example information about the administration of the Trust and the assets of the Trust, in fact any information that is necessary for the Beneficiary to have the Trust enforced. This duty and how Trustees can handle it will be canvassed at the latest Trust seminar held on 5 May 2021. Feel free to bring a friend.
WORK HAPPENING IN THE ENGINE ROOM
As a consequence of the new Act, our Trustee Services desk has been very busy helping proactive clients put their affairs in order.
In particular, Trustees have been reviewing and making changes to the Beneficiary structure of their Trusts in an effort to manage their disclosure obligations. Failing to take this action could give rise to unwanted demands being received by Trustees from a person or charity for information about the Trust.
Additionally, Trustees are taking the opportunity to review the provisions of their Trust Deeds, making changes to bring their Deeds in line with the new legislative provisions. In some instances, what was not permittable previously has now become possible with the heralding in of the new Act.
Finally, savvy Trustees are taking the time to review their whole structure, including their Trusts and their Estate Plans. Many clients have updated new Wills, Memoranda of Wishes and Letters to the Survivors in the last few months.
WHAT TRUSTEES WILL DO DIFFERENTLY GOING FORWARD
Going forward, much will change for Trustees.
Specifically, those professionals who have been holding Trusteeships in their personal names will be well advised to resign as they’ll find potential liability too high a risk to run. This is because a Trustee is personally liable at all times for the Trust under their watch. As such, it is likely only those Trustees whom have the requisite education, skills and processes in place to help a Trust client will continue with Trusteeship work. Even then, professional trustees will want to act as a Trustee within a company structure rather than undertaking their role in their personal capacity.
Professional Trustees are also now more likely to insist on annually catching up with their co-trustees to review the affairs of the Trust, the strategy the Trust has been following, their Beneficiaries’ needs, etc. Trustees have always had to satisfy this duty but I believe the introduction of the new Act will make Trustees more aware of the need to hold this all important meeting and to document the matters discussed and the decisions made at that annual meeting. The passing of this Act heralds the end of the Trustee in name only, without active involvement, as has been the case in many instances historically.
Talking of decisions made, it’s my view all Trustees will take their legal responsibilities of passing resolutions, completing deeds and minuting decisions reached, much more seriously under the new legislative regime than what they previously have. As such, Professional Trustees and savvy Trustees who want their Trusts to stand up if ever audited or attacked, will have their financial statements reviewed with a mind to ensuring all trust administration has been completed and the Trust is compliant. Failures in this respect could mean the Trust fails when challenged, with Trustees, including Professional Trustees, being held liable by Beneficiaries.
OPPORTUNITIES THE NEW ACT AFFORDS
Despite the new Act imposing greater responsibility and liability on Trustees, it also bestows some opportunities. For instance, the life of a Trust can now be extended from 80 to 125 years. This is particularly advantageous for clients who wish to build a legacy and leave assets to their children and successive generations. Trustees will need to improve their knowledge and understanding as to what investments to make to capitalise on this provision in the Act but that is where excitement in Trusts lie.
NZ ECONOMY, TAXES & OPPORTUNITIES
Legislative changes, including opportunities afforded, do not occur in a vacuum. This is pertinent to the introduction of this new legislation. New Zealand’s economy including the new taxation regime, all affect the manner in which legislation including the new Trust Act is implemented. Commentary on the economy, taxes, and potential opportunities available to Trusts will be discussed at the next Trust seminar. Ensure you have a ticket for that to gain valuable information helping you with your personal and business decision-making.
In the interim, if you’re looking for assistance with any aspect of your structure or Trust, do let us know. Happy to help.