We have seen a few cases recently where trust records such as trustee resolutions, financial statements etc have been disposed of. It appears these records have been destroyed along with the tax records for the trust after the 7 year retention period under the Tax Administration Act has finished. We want to remind everyone that apart from tax records all trust documents need to be retained for the trust, including all financial statements for the trust.
This is necessary especially if there are any queries about decisions taken by trustees in the past. Under the new anti-money laundering rules we are also seeing banks and other financial institutions request information about the original source of wealth transferred into the trust and this is hard to supply if all of the trust records have been destroyed.
Please contact Marcus Diprose if you need to discuss this further.
The recent decision in Erceg v Erceg by the Court of Appeal provides guidance on the approach to the disclosure of trust documents to beneficiaries (including bankrupt beneficiaries) by trustees. In our experience, many trustees fail to adequately provide information to beneficiaries about both their entitlement, the financial position of the trust and the decisions made by the trustees.
The Court of Appeal in its judgment set out what it considered to be the position regarding disclosure of information by trustees in the proper course of administration of a trust. In summary, the court concluded:
“The Trustees should approach a request by a beneficiary for disclosure of trust documents as one calling for the exercise of discretion in discharge of the fiduciary duty the trustee owes a beneficiary.
A beneficiary has an entitlement as of right to disclosure of trust documents. Consequently, there is no presumption favouring disclosure. But nor is there a presumption against disclosure.
Whether to disclose, and, if so, the extent of disclosure, are discretionary decisions for the trustee. Thus, if the trustee decides to disclose, the trustee’s discretion encompasses whether the disclosure should be complete or partial (for instance, made with redactions).
In making the decision, the question for a trustee is always: What, if any, disclosure will be better to:
a. ensure the sound administration of the trust;
b. discharge the powers and discretions in respect of the fiduciary obligations the trustee owes the beneficiary, in particular the trustee’s duty to account?
c. Meet the trustee’s obligation to fulfil the settlor’s wishes?”
The courts also noted that an excellent summary of the trustee’s obligations are set out in the case Schmidt v Rosewood Trust Limited  UK PC 26;  2 AC709. It did however conclude that the considerations for a trustee will be circumstances dependent.
It is our experience that usually trustees do not provide any information to beneficiaries. In addition, beneficiaries are often not aware of their rights.
Based on our extensive experience in the management and trusteeship of trusts, we believe that beneficiaries should be aware that they are beneficiaries of a trust, they should have a copy of the deed, and unless there are compelling circumstances otherwise they should receive summarised financial information on an annual basis and details of trustee’s decisions. It is not necessary however for trustees to provide the basis of their decisions.
This continues to be an evolving area of law and with New Zealand currently going through a review of trust law, we expect there to be significant changes to the future Trustee Act which will actually statutory require certain disclosures to be made. Best practice is going to become standard practice in our opinion within the next few years.
Covisory Trust brings together two New Zealand trust experts Nigel Smith and Marcus Diprose. Collectively they have a wealth of experience providing independent trust advice and trustee services both domestically and offshore. Covisory Trust offers Independent Trustee Services, Trust Formation, Insurance Trust Services, Formation of NZ Limited Partnerships and Look Through Companies and Independent Trust Advice.
In our opinion current case law and proposed changes to New Zealand Trust law will put increasing pressure on trustee’s to do their job correctly and conversely be exposed to more risk. The Covisory team specialise in this area and we are well equipped to deal with your specific needs.
Our services will include:
- Independent Trustee Services
a. We will provide independent trustees services to a wide range of New Zealand domestic and foreign trusts.
(i) Full administration services to ensure the decisions of the trustees, and other parties to the trust, are:
* Properly documented;
* Record keeping is up-to-date;
* Accurate and timely reporting is maintained and communicated to all parties to the trust.
b. Act as a Court Appointed Trustee.
c. Have an independent Trustee Company for New Zealand Domestic Trusts (Covisory Trust Limited) and for New Zealand Foreign Trusts (Covisory (NZ) Trust Limited) which can act as a trustee of a Trust.
2. Trust Formation
a. We provide full formation services for New Zealand trusts. Includes:
(i) Initial client meetings;
(ii) Drafting of all trust documentation based on the instruction of the client;
3. Insurance Trust Services
Private businesses should always have some form of insurance coverage to help facilitate the sale and purchase of shares upon the death or permanent disability of a director/shareholder.
(i) We work with insurance brokers to set up buy/sell agreements and provide trustee services to deploy the insurance proceeds as per the provisions of the trust deed.
- Formation of New Zealand Limited Partnerships (NZLP) and Look Through Companies (LTC)
a. We provide full formation and administration services for both NZLP and LTCs including acting as a New Zealand resident General Partner or Director.
5. Independent Advice
a. Full Review of Trust Structures due to changes to family dynamics or law changes.
(i) Including advice and recommendations on what steps to take on a go forward basis.
Recent projects the CTSL team have been involved in include:
- Advice and formation of a New Zealand foreign trust structure to hold intellectual property;
- Family restructuring; including the consolidation of a number of existing trusts, resettlement of assets, additions of beneficiaries and associated advice;
- Advice to a New Zealand private charitable trust as to how distributions can be made under the terms of the trust and development of a checklist for the trustees to assist in vetting applications received for distributions.
If you would like to find out more about Covisory Trust Services please visit us at https://covisory.com/trust-services/ or talk to Nigel Smith today on +64 9 307 1777 (firstname.lastname@example.org) or Marcus Diprose on +64 9 307 1777 (email@example.com ).
New Zealand is a common law country that has a long standing and mature trust and foreign trust industry.
Trusts are extensively used for asset protection, tax planning and trading purposes. New Zealand Trust legislation, the Trustees Act 1956, is modelled on the United Kingdom Trust Legislation, the Trustees Act 1925, with some departures. It is possible to use a corporate trustee as the trustee of the Trust which offers greater flexibility and separates control further from the settlor.