Trusts under fire? The review of trust law in NZ

|

It was already our advice settlors and to review the state of their individual trusts. This is particularly important in light of any personal, legal or policy changes. The changing treatment of Trusts in New Zealand means that regular legal review is essential.

Smith and Partners supports the current review of trust law undertaken by the Law Commission; it was time for a robust review and the recommended changes. The new Act should result in clear guidelines for all who work with and have an interest or role in Trusts, and should reduce the cost of disputes and injustice when trusts are neglected, “go wrong” or are challenged.

The review was begun in 2010 and the Commission will report again later in 2013, with their final recommendations for a whole new Trusts Act, to replace the Trustee Act 1956 and the Perpetuities Act 1964.

Just some of the significant likely changes in the proposed new Act are:

Better definitions and explanations of roles of Trustee and Beneficiary
No trust will exist if the sole beneficiary is the sole trustee.

Formalise Trustee’s duties as to conduct that cannot be excluded including:

·                     Duty to act honestly and in good faith for the benefit of the beneficiaries
·                     Duty to exercise such care and skill as is reasonable in the circumstances
·                     Duty to understand and adhere to the terms of the trust
·                     Duty to account to the beneficiaries for the trust property
·                     Duty to exercise the powers of a trustee for proper purpose

A range of other implied duties that can be modified or excluded specifically in the trust deed will also likely be legislated.

Trustees’ duty to inform beneficiaries of trust information (which is widely defined) and their rights as beneficiaries
This has been controversial proposal as the obligation could be onerous or disruptive. For example, it includes the duty to inform all beneficiaries of their status as beneficiaries and disclosure of what were previously confidential documents, such as the Memorandum of Wishes.

Transparency and direct liability for the directors of corporate trustees
For example, Section 25 of the Companies Act 1993 is recommended to change so that a company is required, when acting as a trustee of a trust, to clearly describe its status in communication in the form “X Ltd acting as trustee for Y trust”.

Maximum duration rule for trusts to be 150 years
This will bring New Zealand in line with other trust jurisdictions.  Previously the maximum duration was 80 years after which the property had to be vested upon beneficiaries. The new period will allow for a higher amount of flexibility for trustees to dispose of property as they choose.

Relationship Property
The impact of trusts in relation to relationship property and other family claims has also been considered and recommendations for further focussed review of that particular area have indicated that a number of changes are highly likely in the future. These changes are likely to further reduce the use of Trusts as a shield from claims to what would otherwise be relationship property.

A significant theme is that Trusts should not be used to unfairly defeat entitlements under the Property (Relationships) Act 1976 or the Family Proceedings Act 1960, and that de facto couples should be treated the same in regard to their trust property in the event of a separation. This would require changes to all the relevant legislation.

In most circumstances a Contracting Out Agreement (sometimes referred to as a “prenup”) is the only way to legally clarify both parties’ respective future entitlements, or not, to trust and other property. It is also possible to specifically provide for separation in the Trust Documents themselves.


It is more important than ever that those involved with Trusts take proper and regular advice, and Trusts are formally reviewed with your lawyer, at least on an annual basis.

Smith and Partners are recognised experts in family trust law.  To review your family trust or for advice on your responsibilities and liabilities contact Peter Smith by phone on 09 837 6882 or email peter.smith@smithpartners.co.nz