From 8th Century Rome to 21st Century New Zealand, trust law has developed over time to meet the changing needs of society. In New Zealand, one of the latest developments has been the passing of the Trusts Act 2019 (Act).
The Act was aimed at making trust law more accessible while increasing the obligations on trustees to ensure they properly manage trusts. Now 2 years on from its enactment, we take a look at how the Act is changing how we operate trusts.
Disclosure of Information to Beneficiaries
Under the Act, trustees must make available to every beneficiary certain trust information unless an exception applies. This requirement has been difficult to comply with in practice. For example, in older trust deeds there is sometimes a large number of beneficiaries listed in the trust deed beyond the core family members. These beneficiaries could include defacto partners, spouses, more distant relatives by blood or marriage and other trusts that have common beneficiaries with the trust.
Where there are beneficiaries listed in the trust deed who are not likely to benefit from the trust or will only benefit in a specific set of circumstances, trustees may be faced with a difficult decision around what information (if any) they should give to those beneficiaries. If the trustees, choose not to give information to those beneficiaries then they need to document their decision carefully to ensure they comply with the Act.
If the trustees decide to disclose trust information to beneficiaries, then the trustees need to decide how best to discuss the matter with the beneficiaries or write to the beneficiaries so as to comply with the Act. Some trustees are organising family meetings to deal with these requirements.
In some cases, the trustees or the settlors are making decisions to remove beneficiaries who have a remote chance of benefiting from the trust. A decision to remove beneficiaries carries with it some risk and usually requires legal advice.
The practicalities of complying with the new disclosure requirements under the Act are creating new challenges for trustees and causing trusts to have extra compliance costs. At the same time, it is making families think harder about the purpose of their family trusts and often this leads to them updating their family trusts to make them more fit for purpose.
Record-Keeping Requirements
The Act introduced more stringent record-keeping requirements. Trustees are now required to ensure they keep proper records and the records they must keep are listed in the Act. These records can be kept electronically. The trustees can nominate one trustee to be the record keeper. In practice, trustees are passing written resolutions to record who the record keeper is. Ensuring these records are properly kept is important for a number of reasons:
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Trustees are more likely to receive requests for information from beneficiaries because of the new rules under the Act.
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When a trustee retires, the retiring trustee must hand over the trust records to the incoming trustee.
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The Inland Revenue has introduced new trust reporting requirements rules aimed at collecting more information about trusts relating to settlements, distributions and loans to beneficiaries.
To help deal with the additional compliance requirements, trustees are having more regular meetings to ensure transactions are properly recorded and appropriate records are maintained.
The Independent Trustee
Under the Act, trustees cannot be protected against gross negligence. As a result of this law change and the additional compliance requirements under the Act, family members and family friends are becoming more reluctant to act as trustees. It has also become more difficult to find professionals to act as independent trustees. More often families can now expect to pay a professional trustee a trustee fee rather than have their lawyer or accountant undertake the role based on an hourly rate or without charge to secure other legal or accounting work.
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