In New Zealand, we are now hopefully nearly through the Covid-19 lockdown phases, and are starting to see some of the impacts for various businesses and individuals. We consider some of the practical issues relevant to trustees during this unprecedented time.
The impact of the Covid-19 pandemic on investors is extensive, and it appears there may still be volatility ahead as world and local economies adapt to the fallout from the pandemic.Unless the trust deed states otherwise, there is a general obligation on trustees to diversify their investments and to invest prudently. They also have a duty to regularly and actively review the management of the trust fund. Trustees must therefore be proactive and act reasonably to ensure they comply with their duties when exercising their powers and considering investments.
Trustees should regularly review the trust assets and consider the various investments. If there is an investment portfolio, this should be discussed with an investment advisor, particularly given the current instability of the market. If trustees have made loans or have the benefit of loans, then the terms of these loans may need to be reviewed. If the trust holds real estate that is subject to a lease then an agreement on rental may need to be confirmed if the tenant can not make expected payments. These are just a few examples of considerations for trustees during this time.
Trustees need to take all reasonable steps to ensure that their duties and fiduciary obligations are complied with at all times.
Given the current climate, trustees are considering how trust assets are likely to be impacted by the Covid-19 pandemic. This will involve evaluating changes in the cash flow from trust assets and anticipating future issues.
For many trusts it will be important for steps to be taken to preserve cash in the trust fund and reduce expenses in order to maintain the position of the trust fund.
Trustees may wish to create an open dialogue with any creditors about present arrangements regarding payment and whether these can be re-evaluated.
If the trust has a significant cash-flow crisis, it may also be worthwhile having a discussion with any beneficiaries who regularly receive trust distributions to assess whether the distributions can be temporarily stopped or reduced.
Equally, beneficiaries who are already in compromised positions, whether through health, family or employment issues, may require additional support at the current time. Trustees will likely need to consider more frequent requests for distributions.
Review of trust mechanics
The implementation of the Trusts Act 2019 is now only six months away. This will bring into sharp focus the duties of trustees and others who have roles within trust arrangements. Although there has been significant disruption due to the pandemic, iIt is important for trustees to now review the terms of the trust deed in light of this new legislation as there may be changes that need to be made.
As part of the review, you should ensure that appropriate mechanisms are in place so that the trust can still operate if a key individual dies or loses the capacity to make decisions.
For example, the person(s) who holds the power to appoint and remove trustees may wish to appoint somebody else to hold this power on their death or incapacity. This is especially important for trusts where only one person holds a key power, particularly when that person is getting older or has significant health issues.
Discussions relating to succession planning can be delicate to raise, but they are important conversations to have.
During the lockdown many of us have utilised modern tools to assist us in our work. Unless the trust deed prescribes a format for meetings, it will be in order for trustees to meet electronically.
Most documents can be signed via audio-visual technology. Documents signed remotely should include a ‘counterparts’ clause. A counterparts clause allows each party to a document to sign different, but identical, copies of the document. If there is doubt as to whether a document can be signed remotely or with an electronic signature, trustees should seek advice.
If you have any questions about trustee considerations during this time, please get in touch with our Private Wealth Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.