07/08/2020

Are you ready for the new Trust Act 2019?

In summary

  • The Trust Act 2019 (the Act) comes into effect 1 February 2021 and applies to all express trusts (i.e., the majority of trusts) governed by NZ law. The Act includes some key changes as well as a codification of the existing law (see discussion of the new position in our information sheet – link below).
  • These changes will impact a significant number of trusts and their trustees. In particular, trustees will need to be ‘more involved’ with trust administration and will need to properly understand the trust deed, the assets and income held in trust and the beneficiaries.
  • Overall, VCFO view these changes as imposing a fit-for-purpose standard on trusts, which brings greater obligations and disclosures for trustees. The new law spells an end to perfunctory trust administration by trustees, and will require persons be more than just namesake trustees. All trustees will need to be aware of the trust terms and property and of their statutory obligations. In short, trustees will need to know and understand what is going on, and will need to proactively sign up to trust decisions. Some trustees will inevitably withdraw / retire, since this all spells more work. This new law will likely see a rationalisation and cessation of a great many trusts.
  • There are an estimated 400,000 to 500,000 trusts in existence in New Zealand. The last legislative review was in 1956 and there’s been a lot of case law in the interim, so we were long overdue for this update.
  • It’s anticipated the new law may lead to as many as 15%-to-20% of all trusts that are currently poorly managed and administered being wound up; on current estimates that could be as many as 100,000 trusts.
  • The aim of the new Act is to make trust law more accessible to trustees and beneficiaries and strengthen beneficiary ability to hold trustees to account. Not surprisingly then, it sets more stringent rules around record keeping and provision of information to beneficiaries, as well as setting out trustee duties in easily understood terms.

Key provisions

  • The new law introduces some mandatory trustee duties (where the trust deed cannot opt out), alongside some default trustee duties (the settlor may set these aside in the deed). A handy summary of your obligations is included in our information sheet – see link below. Consider: do you need to amend your deed and/or do you understand our trustee obligations? Please talk to your VCFO adviser about your options.
  • Beneficiary access to information and on what terms trustees may withhold information has been much discussed in the media. A handy summary of your obligations is included in our information sheet – see link below. A decision to provide information to beneficiaries, or withhold it, will need to be reconsidered regularly and documented to ensure trustee protection; the Act also imposes a process to ensure accountability where information is to be withheld. VCFO can assist in setting up your new precedents or documentation to ensure you are meeting these obligations.
  • The maximum duration of a trust is increased from 80 to 125 years.
  • Trustees may no longer be indemnified by the trust for dishonesty, wilful misconduct or gross negligence.
  • VCFO believe the Act is overall positive and will lead to improvements in trust practise and management. Properly administered trusts should not encounter more burdensome obligations. A great many other cursory trusts and trustees (and there are large numbers in this vulnerable category) will find themselves operating contrary to their legal obligations, and reproachable as a matter of law. Talk to VCFO if you are unsure of your obligations.

View our information sheet here:
https://mcusercontent.com/fcfe3054f3b219fc9ee94de70/files/c0bcfad0-edd1-421f-8fcf-adf95d2d3e31/Trust_Act_2019.03.pdf