The Trusts Act 2019 comes into force on 30 January 2021. The intention of the law reform is to make trust law more accessible for those who have a connection to a trust. With more than 500,000 trusts estimated to be in existence in New Zealand, there are a lot of people, whether they are settlors, trustees or beneficiaries who need to be aware of their rights and obligations.
How does the new legislation change how Trusts need to operate?
The core duties of a trustee have not been changed by the Act, but have been divided into categories: duties which cannot be changed by the terms of the trust and those which can.
The mandatory duties stipulate that a trustee must:
- Know the terms of the trust.
- Act in accordance with the terms of the trust.
- Act honestly and in good faith.
- Hold trust property for the benefit of beneficiaries or to further the permitted purpose of the trust.
- Exercise the trustee’s powers for a proper purpose.
Even though these duties currently exist there will now be an increased focus on making sure they are carried out properly, as they are now written down starkly in legislation in plain language.
As a result, trustees are likely to be more often called to be accountable for their actions by beneficiaries and other interested parties.
How will beneficiaries be able to hold trustees accountable?
It will now be mandatory (except if the beneficiary is a child or in special circumstances) to disclose certain information to beneficiaries. That information is:
- The fact that a person is a beneficiary of a trust.
- The name and contact details of the trustee and any changes to that information.
- The right of the beneficiary to request a copy of the terms of the trust and/or trust information.
As a result, there will be much greater awareness and transparency among those who have trust relationships.
A lot of trusts in New Zealand have not had a high level of governance in the past. The law reform seeks to “raise the bar” to make sure that trusts are run properly and achieve their aim.
What should I do if my trust has not been run in a transparent way to date?
Hesketh Henry can assist clients to understand how a trust should operate under the new framework and whether their trust is fit for purpose in this new environment.
I don’t like the sound of any of this. Do I still need a trust?
Everyone’s circumstances are different and need to be considered individually.
The increased compliance and rigor required for trusts in the future may be worthwhile where a trust still provides some protection against relationship property claims, for creditor protection and for individuals who are not able to manage funds on their own. Trusts continue to be an excellent tool for managing family wealth through the generations.
Other factors (apart from the changes in New Zealand) which have made trusts more challenging in recent years are the tax consequences and country-specific disclosure requirements of making trust distributions to off-shore beneficiaries. Lots of New Zealanders have children who are now living overseas for whom this is a consideration.
How can Hesketh Henry help?
We have been helping clients prepare for these changes since they were signaled almost a decade ago. As the law change draws closer, we are at the forefront of advising private clients on how they can ensure their trust and personal structures remain workable and durable for the future.
If you want to discuss your own circumstances, please contact one of the members of the Private Wealth Team.