In late 2013, the Law Commission completed a report recommending that a new Trusts Act replace the Trustee Act 1956. The public consultation phase began last December with the release of the exposure draft Bill. It is intended that the new legislation will be the primary source of trust law in New Zealand. We outline below some key proposals.
Most trusts in New Zealand are established with a written trust deed or other document such as a Will. These are known as ‘express trusts.’ The Bill only applies to express trusts. Characteristics of express trusts are defined in the Bill as:
- A fiduciary relationship in which a trustee holds or deals with trust property for the benefit of the beneficiaries or for a permitted purpose
- The trustee is required to hold or deal with the trust property in a way that it is identifiably separate from the trustee’s own property
- The trustee has a duty to hold or deal with the trust property in accordance with the terms of the trust and the duties imposed on the trustee by law, and
- The trustee is accountable in respect of the way the trustee carries out those duties.
These characteristics already exist in New Zealand’s case law, but they will also now be contained within the proposed Trusts Act.
It may be helpful for trustees to be reminded that trust property should be dealt with separately from their own property, and only in accordance with the trust deed and for the benefit of the trust’s beneficiaries.
Trustees will have a number of mandatory duties; these cannot be excluded or modified by a trust deed. These mandatory duties are to:
- Know the terms of the trust
- Act in accordance with the terms of the trust
- Act honestly and in good faith
- Hold trust property
- Act for the benefit of the beneficiaries (or the permitted purpose), and
- Exercise trustee powers for a proper purpose.
Trustees will also have a number of default duties. These duties can be excluded or modified by the trust deed. For example, trustees have a default duty not to benefit themselves or to act where they have a conflict of interest, but a trust deed can allow a trustee to act in their own interest. Even now, trust deeds will often specify situations in which a trustee is permitted to act in his or her own interest, for example, when a trustee is also a beneficiary. It is important to know the terms of the trust and what is, or is not, allowed.
Most of the duties restate the current case law, but the requirement that trustees be familiar with the terms of the trust may be a warning for non-professional trustees who may not fully understand their obligations. Trustees will also be obliged to retain copies of trust documents, which is a practice even some professional trustees fail to follow at present.
The draft Bill provides a process for disclosure of ‘trust information.’ There’s a presumption that trustees must notify ‘qualifying beneficiaries’ that they are beneficiaries, and they must provide trust information to a beneficiary who requests it within a reasonable time. They may only withhold information in certain circumstances.
‘Trust information’ includes the trust deed, documents relating to trust administration and trust property, and other information necessary to hold trustees accountable.
A ‘qualifying beneficiary’ is a person who the settlor intends to have a realistic possibility of receiving trust property. While the requirements give trustees flexibility where necessary, it makes it clear that there is a presumption in favour of keeping beneficiaries informed.
There are a number of other proposals contained within the draft Bill (for example, the documents trustees are required to keep throughout their trusteeship) but those outlined above are some of the significant ones of interest for trustees.
We will keep you up-to-date on the progress of this legislation through the House. In the meantime, if you have further questions about your current obligations as a trustee, please contact us.