The future of trusts – change is on the way

On 31 October 2018 the Justice Committee reported back to Parliament following its consideration of the Trusts Bill (Bill) which will, in time, become the Trusts Act 2017 (Act).  The Act is intended to provide “clear, simple and accessible trust law” and attempts to capture current practices, case law and fundamental principles from common law as it relates to the operation of all express trusts in New Zealand.

The Act will replace the Trustee Act 1956 and the Perpetuities Act 1964.  Based on the current form of the Bill, the Act will come into force 18 months after receiving the Royal Assent (the commencement date) – realistically, the commencement date is unlikely to be before the start of the third quarter of 2020.  A transitional period of three years has also been signalled to facilitate an orderly transitioning of existing trusts to the new Act.

The Act is intended to apply to all express trusts governed under New Zealand law, whether created before, on or after the commencement date.  This means that, where a trust deed and the Act are inconsistent or the Act imposes additional mandatory duties or requirements, the Act will usually prevail.

The definition of an “express trust” under the Bill is wide and effectively captures any relationship where a person (a trustee, although a company established for the purpose can also be a trustee) holds or deals with property for the benefit of one or more beneficiaries, and can be held accountable for the way in which the trustee carries out their duties – this will capture all family trusts, charitable trusts and commercial trusts.  This is different from the situation of an agent, for example, where an agent holds or deals with property that is owned by another person (a principal) and is not holding or dealing with the property for any beneficiaries.

The Act requires each trustee to perform mandatory and default duties.  The essential difference between the two is that mandatory duties are largely entrenched – a trustee has no alternative but to perform these duties – whereas default duties are compulsory only to the extent that they have not been modified or excluded by express or implied terms of a trust from those set out in the Act.  As such, the Act also generally requires a lawyer or other adviser to take reasonable steps to ensure that the initial settlor of a trust is aware of any change they wish to make to the default duties.

The maximum life of a trust will simply be 125 years from the date of creation instead of the sometimes uncertain period currently provided in the Perpetuities Act.  The only trusts that may continue to exist indefinitely are charitable trusts, certain superannuation schemes and certain specified exempt trusts.  However, a trust created before the commencement of the Act will continue until the date (if any) specified in its trust deed, or 125 years if no date is specified.

The Act requires trustees to disclose specified information to beneficiaries.  However, charitable trusts are excluded.  This is largely common sense, as potential beneficiaries of a charitable trust will likely be significant in number and a person’s status as a potential beneficiary may likely change over time.  Charitable trustees, however, must comply with the other requirements set out in the Act.

Certain sections of the Act will not apply to specified commercial trusts that are created before the Act comes into force (such as provision of documents or information to beneficiaries, certain trustees’ powers and duties, trustees’ indemnities, termination of trusts and the ability of the Public Trust to investigate certain matters) but such ‘exclusions’ from the Act are not automatically available to specified commercial trusts created after the Act comes into force, unless their application is modified or excluded by the terms of the trust.  A “specified commercial trust” is an express trust created for a commercial transaction, a wholesale trust or a security trust.

There are also a number of exemptions to the Act that will be available for specific specialised trusts (such as deeds of supervision created under the Retirement Villages Act 2003), trusts relating to regulated offers of debt securities or registered managed investment schemes and broking trusts.  The Financial Markets Conduct Act 2013 (FMCA) will also be amended to extend the Financial Markets Authority’s power under the FMCA to grant further exemptions to the Act where it is otherwise granting exemptions from the requirements of the FMCA.

In summary, although the Act will contain a lot more prescription around how the trust operates, and the rights/powers/duties of trustees and beneficiaries, it is arguable that it is adding little to how a properly administered trust should be running today.

A trust that currently operates with robust processes for appointing and retiring trustees and beneficiaries, good communications with beneficiaries, and effective and timely reporting, meeting procedures and dispute resolution processes, will notice little difference operating under the new Act.

Please don’t hesitate to contact a Partner at Lane Neave if any of this raises concerns for you, either as a settlor, trustee or beneficiary of a trust.

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