If you are a trustee or a beneficiary of a NZ trust it is worth doing your homework.

In late 2017 the new Trusts Bill was introduced to the New Zealand Parliament.  It is expected to become law later in 2019 and it will have some major implications for trustees.  The law changes will have a major impact on how trusts are administered in the future and new trust deeds will need to be carefully considered by any settlor, rather than rely on a template deed that has been in use for twenty years.

So, what are the major changes:

  1. Trustee Duties: the new law differentiates between mandatory duties and default duties.  Mandatory duties cannot be modified (such as duty to know the terms of the trust, duty to act in accordance with the trust terms etc) but the default duties can be excluded by the deed of trust.  This includes duties such as duty to have a general duty of care, duty to invest prudently etc.  It will be very important for any new trust being put in place that before the document is signed a good conversation occurs between the professional drafting the document and the settlor about what should and should not be excluded.
  2. Beneficiaries: under the new rules all trustees must inform every beneficiary they are a beneficiary of the Trust.  They must be informed of the names and contact details of the trustees, whether there are any changes to the trustees, and of their rights to request trust information.  This is a significant change and it must be emphasised that the trustees have a positive duty to do this.
  3. Disclosure of Trust Information: this is defined as information regarding the terms of the Trust (i.e. the deed of trust and all amendments), the administration of the trust and the trust property but does not include trustee decisions.  There is a presumption towards disclosure to beneficiaries unless there is exceptional circumstances and this is following modern common law principles.   
  4. Increase to the Trust Period: currently New Zealand Trusts have a trust period of 80 years.  The law changes revoke the Perpetuities Act and increase the trust period to 125 years.   

What are the practical implications you need to think about?

  1. New Trusts:
    1. As a settlor wanting to put a new trust in place, you need to carefully think about:
      – whether any of the default trustee duties can be excluded
      – who will be the beneficiaries of the Trust, especially when more information will be supplied to beneficiaries in the future
      – where are the trust documents to be kept?
  2. Existing Trusts:
    1. For existing trusts, the deed of trust and trust structure should be comprehensively reviewed, and varied if necessary, for the following:
      – Trustee duties
      – Class of beneficiaries and whether this should be limited going forward as the trustees will need to inform all beneficiaries, they are a beneficiary of the Trust.  A lot of older style deeds have a ‘kitchen sink’ class of beneficiaries to include nieces, nephews, spouses etc.  Clearly this has some major issues going forward. In some older trust deeds there may be no power to remove or appoint new beneficiaries.
      – What information should be provided to beneficiaries once any changes to the beneficial class are complete and the implications of providing that information.  For example, a beneficiary may have a beneficiary current account in their favour which is repayable on demand.  We believe that due to the presumption of disclosure in the new rules, trustees will need to provide to ALL beneficiaries a copy of the deed of trust and the annual financial statements for the trust.  This point alone will result in some significant changes to beneficial classes of trusts in New Zealand.
  3. Can the deed of trust be amended to take advantage of the increased time period for a Trust? It is likely this will not be possible in some older deeds, but more modern deed may have some flexibility to allow this.
  4. Do you really need a trust?  We suspect there are a lot of trusts in New Zealand that are not required and the changes to New Zealand’s trust law is likely to be the catalyst for trusts to be unwound.

We recommend the first step is to thoroughly review the deed of trust as the first step.  Covisory can help you with this so please contact us (+64 9 307 1777) to arrange a time.