Submission on the Draft Trust Bill (2016)

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The below submission was written by Peter Smith and submitted in December 2016 to The Trusts Bill Consultation Team at the Ministry of Justice in response to a draft Bill on trusts that was published in November 2016. Further commentary on the draft bill and its possible effects on Family Trusts in New Zealand can be found by reading "A New Trust Act? Our Submission on the Draft Bill". 


SUBMISSIONS CONSULTATION DOCUMENT AND DRAFT TRUST BILL

1. The majority of Trusts in New Zealand are discretionary family trusts. These trusts have been set up in the main by couples who are married or in a de facto relationship, for the benefit of themselves and for their children and grandchildren. They are usually operated on a generational basis with the first generation of beneficiaries being the settlors, the second generation being their children and the third generation being grandchildren and so on. Each generation generally administers the Trust for their benefit on the assumption that the succeeding generations will receive the benefit of what’s left after the income and capital distributions made to the previous generations. 

 2. In practice, the settlors of the above described discretionary family trusts are very sensitive to the issues of involving their children in:

2.1 The administration of the trust; and
 

2.2 The right to receive distributions from the Trust. 

3. In this writer’s experience children have a habit, if they are appointed trustees during the lives of their parents, of attempting to assume too much control and this leads to disputes that were unintended and not envisaged by the settlors when the trust was established. Accordingly it is the writer’s firm belief that while the settlors are alive, that if they are the principal beneficiaries of the trust then the discretions of the trusts should be able to be applied in their favour without the requirement of children beneficiaries looking over the shoulder of the trustees and criticising the distributions that have been made. 

4. The writer does not think that the Trust Bill addresses the above described trusts in sufficient detail. 

COMMENT ON THE BILL

General

5. The writer is of the view that while the settlors (who after all are the architects of the trust) are alive that their children discretionary beneficiaries should not be entitled to receive either the trust information as defined in section 41 of the Bill or basic trust information as defined in section 43 of the Bill and that the Bill should be amended accordingly. 

6. The writer applauds the extension of the duration of a trust to 125 years and the abolition of the ruling against perpetuities. It is only by encouraging the long duration of trusts that we will assist to changing the culture in New Zealand to a culture that encourages the appreciation of accruing wealth through each generation of a family. 

7. Many trust deeds have a rule prohibiting the extension of the term of a trust. The new legislation should address this. 

Suggested Amendments

Section 11 – Maximum duration of Trust
8. This section should have a clause along the lines of: 

“Notwithstanding anything in the terms of a trust to the contrary, the terms of every trust that existed before the commencement of this Act, shall permit the duration of the trust to be extended to 125 years.” 

Abolition of rule against perpetuities
9. Presumably it is the thinking of the Team that the life of a trust will be able to be extended beyond 125 years, by virtue of a resettlement completed with the consent of all beneficiaries and if necessary the Court pursuant to sections 109 and 111. The writer is of the view that the Bill should make this clear by adding a section 8(c) that reads: 

“Will prevent the duration of a trust being extended by virtue of a resettlement completed with the consent of the beneficiaries and if required the Court in accordance with sections 109 and 111.”

Information to beneficiaries
Definition of qualifying beneficiaries

10. The writer is of the view that this definition should be amended to read: 

Qualifying beneficiary means a beneficiary who has a reasonable likelihood of receiving trust property under the terms of a trust. Nothing in this definition will prohibit the terms of a trust which exclude a discretionary beneficiary from being a qualifying beneficiary.” 

Subsection 44(2)
11. This subsection should have the words added to it: 

“Or the terms of the trust permit that the information should not be given.”
 

Section 45(1)
12. This section should have an additional subsection 45(1)(c) that reads as follows: 

“The terms of the trust deed or any other document containing the terms of the trust.”
 

Section 45(2)
13. This section should have a further subsection (l) that reads: 

“The terms of the trust deed or document containing the terms of the trust and whether such terms permit or prohibit the making available or giving information to a discretionary beneficiary.” 


The writer thanks the Trust Bill Consultation Team for their work and looks forward to the results of the consultation round.

 Yours faithfully
 SMITH AND PARTNERS
 Peter Smith
 PARTNER

 

 

 


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