New Trusts Act Explained
2500POSTED:
GRA Blogs
Articles by Matthew Gilligan
The utilisation of trusts for asset protection, estate planning and tax planning purposes has exploded over the last 20 years. I suspect many readers are currently trustees of trusts. I equally suspect that very few readers have read the Trustee Act 1956, which was essentially the legislative rule book for trustee obligations.
If you have had the misfortune to read this 60-year-old piece of legislation you would realise that it is nearly impenetrable in its complexity and likely left you none the wiser as to what your trustee obligations are.
On 30 July 2019, Parliament's solution to this lack of a coherent, readable rulebook for trusts received royal assent in the form of the Trusts Act 2019. This is designed to be a one-stop shop for trustees and beneficiaries in terms of their obligations and entitlements. While in large part this new legislation merely repackages existing statute and common law principles that are fairly well known, there are some changes that those of you who are trustees of existing trusts, or those of you who may become trustees of trusts in the future, should be aware of.
In particular, the following points are worthy of note:
• While the Act passed on 30 July 2019, it does not become effective law until 30 January 2021. This provides an 18-month transition period for trustees of existing trusts to ensure that their house is in order.
• The maximum life of a trust is to be extended to 125 years. At present it is 80 years.
• Trustees will be obligated to provide more information to beneficiaries – starting with notification that they are beneficiaries of the trust. In addition, beneficiaries should be advised of who the trustees are, when trustee changes occur, and the fact that they have a right to request information regarding the trust.
• Trustees must provide “trust information” on request, which is “any information regarding the terms of the trust, the administration of the trust, or the trust property, that is reasonably necessary for the beneficiary to have to enable the trust to be enforced, but does not include reasons for trustees' decisions”. This is fairly broad and would likely extend to financial statements, details of assets held, trustee resolutions and amendment documents.
• Having said that, there are exceptions to these obligations, including consideration of the potential impact that disclosure of information may have on the trustees and the beneficiaries, the age and circumstances of the beneficiary and a myriad of other factors.
• There is a lengthy list of documents that trustees must maintain, noting that if there is more than one trustee it is possible for one trustee to hold the documents on behalf of the other trustees provided that copies can be made available.
• There is a prohibition on trustees contracting out of liability or receiving an indemnity from the trust for breaches of trust due to dishonesty, wilful misconduct or gross negligence.
• There are obligations on advisers to draw the existence of indemnity clauses to the attention of settlors when providing advice in relation to trusts or setting them up.
On 30 July 2019, Parliament's solution to this lack of a coherent, readable rulebook for trusts received royal assent in the form of the Trusts Act 2019. This is designed to be a one-stop shop for trustees and beneficiaries in terms of their obligations and entitlements. While in large part this new legislation merely repackages existing statute and common law principles that are fairly well known, there are some changes that those of you who are trustees of existing trusts, or those of you who may become trustees of trusts in the future, should be aware of.
In particular, the following points are worthy of note:
• While the Act passed on 30 July 2019, it does not become effective law until 30 January 2021. This provides an 18-month transition period for trustees of existing trusts to ensure that their house is in order.
• The maximum life of a trust is to be extended to 125 years. At present it is 80 years.
• Trustees will be obligated to provide more information to beneficiaries – starting with notification that they are beneficiaries of the trust. In addition, beneficiaries should be advised of who the trustees are, when trustee changes occur, and the fact that they have a right to request information regarding the trust.
• Trustees must provide “trust information” on request, which is “any information regarding the terms of the trust, the administration of the trust, or the trust property, that is reasonably necessary for the beneficiary to have to enable the trust to be enforced, but does not include reasons for trustees' decisions”. This is fairly broad and would likely extend to financial statements, details of assets held, trustee resolutions and amendment documents.
• Having said that, there are exceptions to these obligations, including consideration of the potential impact that disclosure of information may have on the trustees and the beneficiaries, the age and circumstances of the beneficiary and a myriad of other factors.
• There is a lengthy list of documents that trustees must maintain, noting that if there is more than one trustee it is possible for one trustee to hold the documents on behalf of the other trustees provided that copies can be made available.
• There is a prohibition on trustees contracting out of liability or receiving an indemnity from the trust for breaches of trust due to dishonesty, wilful misconduct or gross negligence.
• There are obligations on advisers to draw the existence of indemnity clauses to the attention of settlors when providing advice in relation to trusts or setting them up.
In summary, for the most part it is business as usual, as the new Act largely codifies what was common practice already. However, there is no doubt that the obligations of trustees are ramped up under this Act, particularly with regard to disclosing information to beneficiaries. As a result of this, some trustees may reconsider whether they want to remain trustees of trusts and furthermore, it is an opportune time right now to review trust deeds. We recommend you engage with your trust professional or contact the trustee team at GRA for advice: 09 522 7955, info@gra.co.nz or via our website.
Matthew Gilligan
Director
© Gilligan Rowe & Associates LP
Did you like this article? Subscribe to our newsletter to receive tips, updates and useful information to help you protect your assets and grow your net worth. We're expert accountants providing expert advice to clients in NZ and around the world.
Did you like this article? Subscribe to our newsletter to receive tips, updates and useful information to help you protect your assets and grow your net worth. We're expert accountants providing expert advice to clients in NZ and around the world.
Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
Comments
Testimonials
I would like to say thank you for the opportunity for allowing me to come to the property school at Gilligan Rowe + Associates. Im in my early stages of becoming a property investor in New Zealand and to able to come to the property school has enabled to me gain very valuable information and knowledge which will help me be successful in property investing. The property school itself is one like no other because there is so much value given and from experts that practise what they are teaching. This in property school was one of the main highlights because being able to meet experts through the property school was my first time and gave me more confidence in general about property investment. Having combined reading the books (Property 101, Tax structures 101) at home and attending property school, the breath of valuable information and knowledge I have attained is substantial. - Tesfalidet, December 2019
Gilligan Rowe and Associates is a chartered accounting firm specialising in property, asset planning, legal structures, taxation and compliance.
We help new, small and medium property investors become long-term successful investors through our education programmes and property portfolio planning advice. With our deep knowledge and experience, we have assisted hundreds of clients build wealth through property investment.
Learn More
Free Resources, Tools & Downloads
