Important changes to the Trusts Act – Time to review your Trust

On 30 January 2021, the new Trusts Act 2019 (“the Act”) will come into force. The Act is a significant update to Trust law in New Zealand and may have a material impact on the administration of your Trust. It also introduces new Trustee obligations. This article covers what you can expect and how to prepare for these changes.

Mandatory Trustee duties

Under the Act, Trustees must:

• Inform the beneficiaries of the Trust that they are beneficiaries and provide them with the “basic Trust information”. Section 51 of the Act says basic Trust information is:
• the fact that a person is a beneficiary of the Trust; and
• the name and contact details of the Trustee or Trustees; and
• the occurrence of, and details of, each appointment, removal, and retirement of a Trustee as it occurs; and
• the right of the beneficiary to request a copy of the terms of the Trust or Trust information.
• Provide a copy of the Trust Deed and Financial Accounts of the Trust to the beneficiaries.
• Be aware of the compulsory duties for Trustees, which are 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;
• deal with Trust property for the be benefit of the beneficiaries;
• A Trustee must exercise the Trustee’s powers for a proper purpose.
• Trustees must keep all Trust information and documents stored for the life of the Trust.

There are also new requirements for the compulsory removal of a Trustee if one of the Trustees loses mental capacity. It is important to note that the person who has power to appoint and remove Trustees must use that power to remove a Trustee in those circumstances.

Default Trustee duties

There are also default duties that will apply to Trusts, unless modified or excluded by the terms of the Trust. Existing Trust Deeds will need to be reviewed to see whether such duties are already modified or excluded, and Trustees should be giving thought to these default duties.

These are duties which Trustees must comply with unless they are modified or expressly excluded in the Trust’s Trust Deed. Trustees must:

• Exercise reasonable skill and care in administering the Trust, having regard to any special knowledge or expertise that the Trustee has, or to any special business or professional knowledge or expertise if the Trustee is acting in the course of a business or profession;
• Invest prudently, with the same regard to special knowledge or experience (as above);
• Not directly or indirectly exercise their power for their own benefit;
• Regularly and actively consider whether they should be exercising their powers;
• Not bind or commit Trustees to the future exercise or non-exercise of their powers;
• Avoid conflicts of interest;
• Act impartially between beneficiaries;
• Not make a profit from being a Trustee;
• Not take any reward for being a Trustee (this does not prevent reimbursement for legitimate expenses and disbursements); and
• Act unanimously with the other Trustees.

Indemnity clauses

There have been some changes to the rules around indemnity clauses for Trustees too. The new requirements state that the terms of a Trust Deed must not limit or exclude a Trustee’s liability for any breach of Trust arising from a Trustee’s dishonesty, willful misconduct, or gross negligence. Existing Trust Deeds should be reviewed to ensure compliance with this rule.

Recommendations – Reviewing your Trust

It is always advisable that Trust deeds are reviewed from time to time, to ensure that they remain legally compliant, relevant and fit for purpose.

Given the incoming changes to the Trusts Act, we recommend that Trust deeds be reviewed sooner than later. It is also an appropriate time to ensure that you understand these changes to Trusts, and how they may affect you as a Trustee or beneficiary. 

We are happy to assist you with any questions regarding these changes, how they affect your Trust or whether your Trust is no longer fit for purpose. Where you do want to retain your Trust, we can review your Trust to ensure that it complies with the Act, discuss the changes to your specific context and assist with updating your Trust if necessary.

Our specialist team at DTI Lawyers can assist you in relation to all aspects of Trusts, estate planning and asset protection. To discuss your Trust and arrange a Trust review, please contact our experts on 07 282 0174.