In July last year, the long-awaited Trusts Bill received Royal Assent and will come into effect in 12 months from today on 30 January 2021. The new piece of legislation will reform the current New Zealand trust law, which is 70 years old and in desperate need of an update.
With New Zealand having the highest number of trusts (300,000 to 500,000) per capita in the world, this new landmark legislation will have critical implications for the thousands of trustees and many more beneficiaries of these structures.
The new law has profound ramifications for trustees and beneficiaries of existing trusts, as well as for anyone thinking of establishing a trust. It sets out a better direction for all parties involved and makes it easier to resolve disputes. It also aims to modernise outdated language and concepts.
If trusts are an important aspect of managing your assets, your first step is to get familiar with what’s changed.
Know your obligations as a Trustee: The new trust law imposes some mandatory and default duties on trustees that need to be carried out unless they are specifically revised or excluded in the Trust Deed. To avoid breaching the law, trustees should be aware of, and comply with, these duties.
Beneficiary rights: Trustees must provide adequate information to beneficiaries about the trust so that they can enforce their rights. This includes a right to request additional trust documentation. A beneficiary must be advised of the trust and the beneficiary’s interests once the beneficiary is 18 years old, unless otherwise specified within the trust deed.
Record-keeping: The new law prescribes what information/documents trustees should keep and for how long. The core documents that Trustees must keep include the trust deed, variation documents, records of trust property and trustee decision-making, accounting records, financial statements and documents of appointing, removing/discharging trustees.
Updated dispute resolution procedures: Supplying financial statements to beneficiaries on request will be an ongoing expectation. Should a beneficiary be unhappy with the performance of the trust, the governance practices, or the allocation of income/capital to beneficiaries, then they would be able to hold trustees to account through a modern dispute resolution service at little to no cost to the beneficiary.
The lifetime of Trusts and Trustee Indemnity: Trusts have a life of up to 125 years under the new law (currently it’s 80 years) unless it’s wound up and distributed earlier. The law also restricts the use of trustee exemption and indemnity clauses; trustees should be aware of these restrictions when acting.
The governance responsibilities of the trustees: Being a trustee means a legal obligation with potentially a lot of work involved (most often voluntary). A trustee must actively participate and ultimately make all the decisions – trustees could end up being liable for losses caused by the trust if the job is poorly done.
The new law will come into force on 30 January 2021, in 12 months starting from today, and for those of you with a trust, now is the time to dust off the trust deeds and seek legal, financial counsel well ahead of time.
Juliet Moses, a partner at TGT Legal, who specialises in trusts and succession planning, says that people with trusts should not leave it to the last minute to seek advice and indeed clients are already asking how the new law will impact them. There won’t be a “one size fits all” answer.
It is quite an adjustment for many when a 70-year old legislation goes through modernisation and it is very likely that the number of trusts in existence will shrink and that many independent trustees will elect to exit stage left before the 'D' day.
Many have said this is a gross intrusion on the way they manage their assets and the structures that they carefully set up over many decades. However, the counter to that perception is that a significant slice of New Zealand's financial capital in the form of equities, bonds, land, businesses, baches and homes, are owned by trusts and when you reflect on it, it's appropriate that trustees manage the assets well, understand the objectives of the trust and that the governance and management follow global best practice.
There is no time like the present to seek legal and financial advice with the clock ticking.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
