Late last year the Law Commission issued its paper on its preferred approach to the review of the law of trusts in New Zealand.  This is not necessarily what the law will be when the Government looks at this and changes it, but in our opinion it will be fairly close to what they are recommending. The law of trusts is arguably in need of a review because the Trustee Act is based on law as it was in the 1950s.  It has simply failed to keep track of developments in the way we use trusts, let alone the developments in the area of law generally.

The Law Commission has issued a series of five issues papers exploring different issues around trusts.  The summary paper basically encapsulates their views after submissions have been received on these. The scope of the review by the Law Commission is limited to the review of the law that is required for trusts to be established and managed successfully.  This includes the concept of what is a trust, the obligations of those in trust relationships such as trustees, the powers and role of the trustee, the powers of the Courts in addressing these matters and the processes available for resolving disputes.  The objectives of the review are:

  • Modernisation
  • Clarification
  • A more useful and modern Trusts Statute
  • Reduction of administrative difficulties and costs
  • Fairness
  • Fit for a New Zealand context but consistent with International Law

It is proposed that a new trust statute will be introduced and this will include core trust principles from within both the existing Trustee Act but also from common law derived from Court decisions.

As part of this, there will be enhanced trustee accountability.  At present, it is not clear always what the accountability of the trustee as to beneficiaries and others involved with the trust.  It has not always been clear what obligations trustees owe, whether they can avoid liability and how beneficiaries can go about enforcing their rights, if at all.  The proposals set out in legislation Trustees’ duties and the law relating to trust deeds will be clarified so that the express relationships between the parties will be clearer.

One negative aspect of the proposals is that the Law Commission proposes that the office of the Public Trust is used as an independent expert and supervisor of trusts so that parties can go and obtain advice and also to resolve disputes.  While we favour the use of independent parties to do this, it should be noted that the Public Trust is now effectively a privately owned organisation and as such competes with many other trustee companies.  We think therefore it is likely that the role of the Public Trust will be changed so that it is potentially an expert opinion or a panel of expert firms with trust experience.

Without going into the details to any great degree, there are a few points that you certainly should be aware of in relation to trusts:

  1. Trustees under these proposals will be required to be far more diligent and far more involved in the operation of trusts.
  2. Their requirement to provide information to beneficiaries will be a lot greater than it is at present.
  3. It is proposed that directors of companies which act as trustees can be personally liable for debts of a trust in the same way as individual trustees are at present.  In effect there is a proposal to lift the corporate veil.
  4. That there will be certain mandatory provisions imputed into every trust deed.  It will not be possible to legislate out of these.  One of these for example will be the duty to avoid a conflict of interest.  On the face of it, this is pretty benign, but it could mean for instance that a trustee may not be able to buy or sell property personally from the trust.
  5. Each trustee will also be required to retain documents relevant to the trust such as a copy of the trust deed, any variations, a list of all assets currently held as trust property, records of trustees’ decisions and contracts entered into by the trust as well as financial statements.  These will be required to be kept by each trustee under the proposals.


On the whole, we agree that there is a need for a review of the current law of trusts and that the current laws do not in fact fairly reflect and govern the way trusts are used and operated in New Zealand.  Overall we support the conclusions reached and think that they are fair and reasonable and do create a degree of accountability.  However, there are a few areas that go too far and in particular some of the imputed requirements and particularly the use of the Public Trust go too far.

The only good news out of all of this is the proposal to increase the perpetuity period (the maximum life of a trust) out to 150 years.  So not everything is bad and overall we think that the proposals will be acceptable and workable.  There will certainly be trusts which will be adversely affected by these proposals, but they are the ones that probably need to be, given that they are probably not being administered correctly.  For those properly administering their trusts, there will be little to fear in the new proposals and potentially some benefits.

We will continue to keep you abreast of these developments and when the new Trusts Act is eventually enacted, and will work with you to review your trust to ensure that you are both compliant with the new law and obtaining the maximum benefits from it.  As always if you have any questions please don’t hesitate to contact us.