September, 2020
The New Zealand Trusts Act 2019, which will come into force on 30 January 2021, is the first major trust law reform in almost 70 years and applies to all express trusts governed by New Zealand law, including those created before the commencement of the Trust Act. The Act makes important changes to trust law in New Zealand and replaces the Trustee Act 1956 and the Perpetuities Act 1964.
Key changes include mandatory and default trustee duties, active duties to provide trust information to beneficiaries, and restrictions on trustee exculpation clauses.
It is often perceived that a trust is an entity. However, a trust is a legal relationship created by a person, the settlor, when assets are placed under the control of a trustee for the benefit of a beneficiary or specified purpose. The trustee has powers and duties, in respect of which they are accountable, to manage, employ, or dispose of the assets in accordance with the terms of the trust and special duties imposed by law.
The Trust Act lists core trustee duties, classifying them as ‘mandatory’ or ‘default’. Mandatory duties must be performed by the trustee and may not be modified or excluded by the terms of the trust, whereas default duties may be modified or excluded within defined parameters.
According to the mandatory duties, a trustee must know the terms of the trust, act in accordance with the terms of the trust, act honestly and in good faith, act for the benefit of the beneficiaries or permitted purpose of the trust, and exercise powers for a proper purpose.
Default duties are established as a matter of trust law. Under the statutory duty imposed by the Trusts Act, the person advising on the drafting of the trust deed must ensure the settlor understands the meaning and effect of any exclusion or modification of default duties.
Another key provision in the Trusts Act is that the trustee must make basic information available to every beneficiary and to beneficiaries who request it, including:
- the fact that a person is a beneficiary of the trust;
- the name and contact details of the trustees;
- the occurrence of, and details of, each appointment, removal, and retirement of a trustee as it occurs;
- the right of the beneficiary to request a copy of the terms of the trust or trust information.
However, before making the information available, the trustee must consider a range of factors listed in the legislation, such as the nature of the beneficial interest, the expectations of the settlor, the age and circumstances of beneficiaries, and potential damage to relationships within the family. The trustee may withhold the requested information if they reasonably consider that the information should not be disclosed.
The Trust Act outlines the extent to which a trustee may limit their liability. Care must be taken to ensure that the exemption from liability is not too broad and that the trust deed does not exclude liability for any breach arising from dishonesty, willful misconduct, or gross negligence. If the trustee purports to exclude liability or seek an indemnity in breach of these provisions, the clause would be ineffective and struck down as void. However, the trust instrument may still lawfully seek to release the trustee from liability causing loss to the trust arising from negligence, provided it is covered by an appropriately drafted exculpation clause.
Other important changes to the law include:
- An extension of the maximum duration period of a trust from 80 years to 125 years, allowing clients to extend the trust period to continue the asset-protection benefits for longer;
- Modernized and broadened statutory powers for the appointment and removal of trustees to minimize the need for court applications;
- Statutory powers for trustees to appoint delegates and nominees to exercise certain trustee powers;
- Termination of a trust by unanimous consent of taxpayers;
- A requirement to keep core trust documents;
- The introduction of mechanisms to resolve trust disputes.
The objective of the changes in the Trust Act 2019 is to make trust law more accessible to the public, strengthen the position of beneficiaries, and hold trustees accountable.
