A step forward in trust law
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Articles by The Professional Trustee Team
Trusts hail from medieval times and one can be forgiven for thinking current trust law has been on our statute books since that time too. A combination of legislation, common law judgements and equity maxims result in the law being antiquated and complex.
This frequently makes trust law difficult to comprehend and, in some cases, problematic to apply. To remedy these ills, a Trust Bill is currently tracking its way through Parliament. It's already had its second reading on 9 May 2019 and is presently with the Committee of the Whole House.Once the Bill is passed, it will replace both the Trustee Act 1956 and the Perpetuities Act 1964. Its core objectives include making trust law more accessible, clarifying and simplifying core trust principles and essential obligations for trustees, and preserving the flexibility of the common law to allow trust law to continue to evolve through the courts.
What this means is although the legislation will incorporate fundamental principles arising from the common law, the courts will still enjoy flexibility to form new and additional legal principles. As such, this legislation won't codify all trust law but will go along way to updating and improving the current status quo.
Whilst we don't have a Trust Register operating in New Zealand, government statistical information estimates between 300,000 to 500,000 trusts operate in our country. As such, this new legislation has the capacity to affect the affairs of many individuals.
The main changes I think trustees should be aware of are as follows:
This will make it easier for all trustees to appreciate and perform their roles and will enable beneficiaries to understand the scope and nature of trustees' obligations. Some duties will be mandatory. Others will be able to be modified. Consequences for breach of duties will be clearly stated. This may result in greater time and cost being incurred by trustees on matters and activities they're undertaking.
2. Life of Trust Extended
Currently a trust can exist for only up to 80 years. Under the new legislation however, a trust's life may be extended up to a maximum of 125 years. This extension of tenure may provide opportunities for inter-generational asset acquisition, planning and protection.
3. Retention of Trust Documentation
The statute will lay down the documents trustees must keep. These are expected to be the deed of trust, deeds noting changes to trustees, documents altering provisions of the trust deed, documentation describing the trust's assets and liabilities, records detailing trustees' decision-making, accounting and financial statements, and memoranda of wishes to name but a few. Trustees will need to hold these documents throughout their term and then pass them onto new trustees when they themselves retire. This will lead to the need to store and access trust documents, which for many lay person trustees, will be burdensome.
Currently a party may be a beneficiary of a trust and be unaware of this fact. This piece of legislation, however, may change that. Trustees will be required to notify parties they are a beneficiary of the trust. This is likely to be of a concern to some settlors, especially in light of the change noted below.
5. Beneficiaries' Rights to Information Increased
Trustees may have to provide beneficiaries with information pertaining to the trust, including a copy of the deed of trust, trustee details and financial information with respect to the assets and liabilities of the trust. The reasoning behind this provision of information is to ensure beneficiaries have enough information to hold trustees accountable in performing their roles and duties. I imagine this will concern many settlors and trustees who may seek to limit the application of the duty and right by amending (in some cases) the class and breadth of class of beneficiaries.
6. Family Court Powers Widened
Currently legal proceedings involving trusts are frequently heard in the High Court. This is so, even when it is merely a home held by a discretionary family trust. This results in lengthy time delays and costs being incurred. The new law, however, will widen the powers of the Family Court so it may hear and adjudicate on matters that arise in the context of relationship property disputes involving trusts. This should result in greater efficiencies in settlement of conflicts, which I think will be welcomed by most parties.
SUMMARY
The new legislation will change our trust law and bring increased certainty and transparency I believe. The statute will in no way be a complete codification of law but will undoubtedly be an improvement on the prevailing patchwork of branches of law we currently have to work with. In the first instance, I expect trustees will need to consider the statute's implications to the trusts under their control and in the second, diligently ensure they meet their trustee duties, which we can help with at GRA - you can contact us on +64 9 522 7955, info@gra.co.nz or via our website.
The Professional Trustee Team
© Gilligan Rowe & Associates LP
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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.
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