The New Trusts Act comes into force on 31 January 2021.
Tēnā koutou / Greetings to All
Firstly, why do we have Trusts?
A Trust is a good vessel for protecting your assets for your children. You can favour one Beneficiary over another which gives you greater flexibility than your Will. Your spouse and/or children can make a claim against your estate if you have not provided for them in your Will. It is more difficult to challenge the distribution of a discretionary Trust.
If you have a business, a Trust can assist in protecting the family home from creditors if it is owned by the Trustees of the Trust. Similarly, if you are in a new relationship, a Trust made prior to the relationship can assist in protecting your property from a future separation. Trust property is not owned by you, it is owned by the Trustees of the Trust for the benefit of the Beneficiaries.
Let’s look at some definitions:
- Settlor – The person who sets up (or settles) the Trust. Usually this is you.
- Trustees – People you have appointed to look after the Trust. Usually this is you and an independent Trustee.
- Beneficiaries – Those you want to benefit from the Trust. This can be you, your children, your grandchildren.
- Vesting Day – The day the Trust is wound up and the assets distributed to the Beneficiaries.
- Discretionary – How the assets may be distributed to Beneficiaries. This may be equally, or to one only. The decision is at the discretion of the Trustees.
- Trust Deed – The document that guides the Trustees and gives power to the Trustees to act.
So what is new under the new Trusts Act?
- The Trustees must keep good records for the administration of the Trust. This includes the Trust Deed and any Variations, details of the Trust property, Trustee Resolutions, Accounting and Financial Records, to name but a few.
- The Trustees must disclose information to Beneficiaries. This includes advising Beneficiaries that they are Beneficiaries of a Trust, providing details of the Trustees, and providing certain information to the Beneficiaries on request.
- The Trustees have mandatory duties they must follow. These duties have always been under the Common Law (Case-made Law), but these mandatory duties are now set in stone so to speak by being included in the new Trusts Act. Trustees cannot avoid these duties. The mandatory duties include:
- A duty to know the terms of the Trust;
- A duty to act in accordance with the terms of the Trust Deed;
- A duty to act honestly and in good faith;
- A duty to act for the benefit of the Beneficiaries; and
- A duty to exercise the Trust powers for proper purpose.
- There are also default duties that can be written out of a Trust Deed including the duty to invest prudently, acting unanimously, the duty to act impartially, not profiting from the Trust, to name a few.
- The length of time for a Trust has been increased from 80 years to 125 years.
- The ability to remove a Trustee has been simplified by the new Act. This is especially helpful if a Trustee is no longer mentally capable of being a Trustee.
What about my Trust?
Trusts still have their place in New Zealand and can work well. They need to be set up correctly, administered correctly, and are not just left to run themselves. The new Trust Act goes some way towards assisting with the administration of Trusts.
Annual meetings and reviews should take place with the Trustees to ensure that the Trust is being run in accordance with the Trust Deed and the Act. Minutes should be taken and kept. This could be done at the same time as the annual gifting, if appropriate for your Trust. The days of “silent Trustees” are gone.
Some current Trust Deeds may need updating to ensure that the default duties are dealt with correctly in the Trust Deed in accordance with the Settlor’s initial intentions. A Variation of Trust may be required.
If you have any queries about your Trust, please telephone to arrange a time to see Katherine Wilmott or Kim Cotton to discuss. We will be more than happy to assist you.
Ngā mihi / Warm regards
Note: Katherine’s Blog is not a substitute for legal advice, please contact your lawyer.