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News update: A new Trusts Act

Written by Israel Vaealiki, PARTNER; Lana Dixon, LAWYER on April 16th, 2019.    

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    A new Trusts Act

April 2019
 

New Zealand’s law relating to trusts and trust administration is undergoing its most extensive revision and modernisation in over 60 years. On 1 August 2017, Justice Minister Amy Adams introduced the Trusts Bill (Bill) into Parliament.  The Bill will replace the Trustee Act 1956 and the Perpetuities Act 1964 to make trust law more accessible, clarify and simplify core trust principles and obligations for trustees, and preserve the flexibility of the common law to allow trust law to continue to evolve through the courts. The Justice committee reported back on the Bill on 31 October 2018 and recommended the Bill is passed with some amendments. The Bill is now heading towards its second reading. We expect that the Bill will pass into law – most likely during this year.
 

What are the changes?

While there are a range of proposed changes across a number of areas of trust law, the new Bill is not intended to significantly change existing trust law principles. Many parts of the Bill are aimed at either educating the general public, clarifying grey areas of trust law or improving court procedure and dispute resolution mechanisms.

Which parts of the Bill should I be aware of for the day to day running of my trust? 
Disclosure of information to beneficiaries

The Bill provides that a trustee has a positive duty to write to beneficiaries and provide certain basic trust information (subject to certain limitations). This information includes the details of the trustees, and advice that the beneficiary is entitled to request further trust information and documents. While there has always been trust law rules relating to the disclosure of information to beneficiaries, the rules set out in the Bill are more prescriptive.

The new rules may increase the likelihood that beneficiaries will seek information from trustees. To ensure that trustees can comply with the disclosure of information requirements, trustees should ensure their records are up to date and meet to discuss how best to communicate with different groups of beneficiaries. Clients may also want to consider the list of persons who are discretionary beneficiaries in the trust deed.
Drafting practices have changed over the years. In the past, it was sometimes popular to include a broad list of discretionary beneficiaries - some of whom are unlikely to ever benefit from the trust. In these situations, the client may want to look at amending the trust deed to reduce the list of discretionary beneficiaries so that only the persons who are most likely to benefit are included in the class of discretionary beneficiaries. 
 

Indemnity/Exemption clauses

The Bill will prevent trustees from taking advantage of an indemnity under the trust deed in certain circumstances. A trustee will not be protected from liability if they operate the trust in a manner that is grossly negligent. The consequence of this change is that trustees will need to take more care when administering trusts as they cannot rely on a blanket indemnity in the trust deed. Proper administration may involve trustees spending greater time and effort when administering trusts. It is, therefore, a good time for clients to review the purpose of their family trust and whether it is helping them to achieve their goals.

Perpetuity period
The common law rule known as the rule against perpetuities is abolished by the Bill and the Perpetuities Act 1964 is repealed.  Trusts (other than charitable trusts) currently can only specify a maximum period of 80 years. Under the Bill, the maximum duration of a trust will be extended to 125 years. The effect of this change is that family trusts will be able to continue for longer and used as a succession planning vehicle for more generations.
Alternative dispute resolution

The Bill makes changes that support greater use of alternative dispute resolution (ADR) processes such as mediation and arbitration.  Both a trustee and the court will be able to refer a matter to ADR, even where the terms of the trust are silent as to dispute resolution. Trustees may want to consider amending their trust deeds to include dispute resolution clauses that specify their preferred method of resolving disputes.

HOW CAN WE HELP?
These are some of the proposed changes in the Bill. For the most part the Bill will not significantly change the law relating to trusts but it will assist to educate the public on trusts and make the rules relating to the management of trusts clearer. This may lead to trustees being more accountable to their beneficiaries for their actions. We can assist you to review your family trust to ensure that it remains fit for purpose.

We can assist you to review your family trust to ensure that it remains fit for purpose.

FURTHER INFORMATION
For further information or to discuss how the Act may impact on your business, please call or email one of the Jackson Russell  lawyers listed. 

Disclaimer: The information contained in this publication is of a general nature and is not intended as legal advice.  It is important that you seek legal advice that is specific to your circumstances.

All rights reserved © Jackson Russell 2019

 
Contact
 
Israel Vaealiki Publications2
Israel Vaealiki, PARTNER
 
Lana Dixon Publications2
Lana Dixon, LAWYER 
Topics: Trusts
 
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