The much anticipated Trust Act 2017 is currently on its first reading in parliament. Once the bill receives Royal Asset there will be an 18-month transition period before the new rules apply to existing family trusts. It is therefore timely to review the proposed new rules.
Current Trust Law
Trusts have been part of the English legal system since the Crusades in the 12th and 13th centuries. Trust law has evolved as case law built up over many hundreds of years.
In NZ trusts are currently governed by the Trustee Act 1956 and the Perpetuities Act 1964. These Acts are outdated and no longer reflect current trust practice. The proposed Trusts Act 2017 seeks to clarify and simplify core trust principles, outlines the obligations of trustees and make trust law more accessible to everyday users.
Trustees Duties & Obligations
For most people it is the new rules around trustees’ duties and information release obligations to beneficiaries that will be of most interest. The bill separates trustees’ duties into two different parts – those that are mandatory and those that are default.
The mandatory duties must be performed by trustees and cannot be modified or excluded by the terms of the trust. These duties are:
- Know the terms of trust
- Act in accordance with terms of trust
- Act honestly & in good faith
- Act for benefit of beneficiaries
- Exercise powers for proper purpose.
The 10 default trustees’ duties can be modified or excluded by the terms of the trust. The default duties include:
- General duty of care
- Duty to invest prudently
- Duty to avoid conflict of interest
- Duty for trustees to act unanimously.
Other Important Changes
The bill includes other important changes such as increasing the maximum duration of a trust from 80 to 125 years.
The bill also provides guidance on the day to day administration of trusts by clarifying:
- What core documents must be kept by trustees and for how long
- What information must be given to beneficiaries and factors to consider when releasing information
- Who may act as trustee and the processes around appointment and resignation
- How internal and external disputes can be resolved.
Where to from here?
NZ has one of the highest number of family trusts per head of population in comparison with other countries. No one really knows, but there may be more than 250,000 trusts in NZ.
Some people who have trusts may not actually need them, and many more who have trusts do not administer them adequately to fulfill their original purpose. The proposed Trusts Act 2017 is timely and a catalyst for people to:
- Review their existing trusts
- Consider if they still need a trust
- Decide whether to update or unwind their existing trusts.
Free Trust Act Update
Q2 are running a free evening event on Tuesday 17 October 2017. Come along for drinks and nibbles and to learn more about the new bill and discuss the impact it will have on existing trusts.