Trusts are an important part of New Zealand society and the economy. It’s estimated there are currently between 300,000 and 500,000 trusts in Aotearoa.
The new Trusts Act 2019 (the Act) will take effect on 30 January 2021. The Act updates and improves the law governing trusts for the first time in more than 60 years. It will apply to all existing trusts in New Zealand, as well as any trust created on or after 30 January 2021.
This page provides some general information about the changes for people who use trusts, such as trustees or beneficiaries. However, you may want to talk to your lawyer about what the changes may mean for your trust.
The Act doesn’t significantly change the underlying law, so the basic rules of a trust will stay the same.
The Act clarifies the trustee’s role
The Act explains the nature of a trust and the role of a trustee in clear and modern language.
For example, the Act sets out:
the key features of a trust to help people understand their rights and obligations
duties that trustees must carry out under law
requirements for managing trust information and disclosing it to beneficiaries
clear rules around trustee liability.
Clarifying the trustee role could mean in practice trustees need to widen their current level of responsibility. For example, the Act makes it clear that trustees need to be actively involved in trust administration. A trustee will also need to proactively disclose information in some cases.
The Act makes it easier to administer trusts
The Act supports trustees to more efficiently administer trusts and reduce the need to take matters to court. For example, the Act includes:
flexible trustee powers, allowing trustees to manage and invest trust property in the most appropriate way
clear rules about appointing a special trust advisor to advise the trust, and about the delegation of trustee powers
options for removing and appointing trustees without having to go to court to do so
clear rules on changing or closing trusts
provisions to support the use of alternative dispute resolution to resolve disagreements.
The Act clearly sets out the legal duties of a trustee.
Some trustee duties, known as 'mandatory duties', are compulsory and apply to all trusts. Under these duties, all trustees must:
know the terms of the trust – this means what is set out in the trust deed or other trust documents, or matters that are implied in those documents
act in accordance with the terms of the trust
act honestly and in good faith
act for the benefit of beneficiaries, or to further a permitted purpose. Most trusts are set up for the benefit of beneficiaries. There are a limited number of situations where trusts can be set up for a purpose; these will be usually be charitable trusts
exercise powers for a proper purpose.
Other trustee duties, known as 'default duties' also apply, but aren’t compulsory and can be modified or excluded by the trust. These duties apply unless the trust specifies that they don’t, or that they are modified, or it is otherwise implied that this is the case. Under these duties, trustees must:
exercise the care and skill that is reasonable in the circumstances. This will depend on the knowledge and experience of the trustee and whether the person is acting as a trustee as part of their business or profession, such as a trustee who is a lawyer or an accountant
use appropriate powers to invest trust property with the care and skill expected of a business person dealing with someone else’s property. This will also depend on the knowledge and experience of the trustee and whether they’re acting in a professional capacity
not exercise a power directly or indirectly for the trustee’s own benefit. This duty will be limited by implication where the trustee is also a beneficiary
actively and regularly consider whether they should be exercising their powers as a trustee
not bind or commit trustees to a future exercise or non-exercise of a discretion
avoid a conflict between the interests of the trustee and the beneficiaries
act impartially in relation to the beneficiaries, and not be unfairly partial to one beneficiary or group. This doesn’t require all beneficiaries to be treated equally
not make a profit from acting as a trustee
not to take any reward for acting as a trustee, although they may be reimbursed for their legitimate expenses
if there is more than one trustee, to act in agreement with each other.
Documents trustees must hold
All trustees must hold a copy of the trust deed and any document that contains the terms of the trust and any variations made to the trust deed.
At least one trustee must hold:
records of the trust property
any records of trustee decisions made during the trustee’s trusteeship
any written contracts entered into during the trustee’s trusteeship
any accounting records and financial statements prepared during the trustee’s trusteeship
documents appointing, removing or discharging trustees
any letter or memorandum of wishes from the settlor
any other documents necessary for the administration of the trust
any of the above documents held by a former trustee and passed on to the current trustee.
Once the trusteeship ends, the trustee must pass on the documents to at least one new or continuing trustee.
Information trustees share with beneficiaries
The Act sets out a presumption that basic trust information should be provided to beneficiaries. Basic trust information is:
the fact that the person is a beneficiary of the trust
the name and contact details of the trustee/s
details of all appointments, removals and retirements of trustees
the right of the beneficiary to request a copy of the terms of the trust or other trust information.
The Act also sets out a presumption that information should be provided to beneficiaries on request.
These presumptions mean that the starting point is that information should be made available. However, before giving out basic trust information, or information on request, the trustee must consider the factors set out in section 53 of the Act. If, after doing so, the trustee considers that the information should not be made available to every beneficiary, then the trustee may withhold the information.
Trustees and beneficiaries should familiarise themselves with their rights and obligations under the new Act.
If you have a trust, or are thinking about setting up a trust, you may want to talk to your lawyer about what the changes may mean for you and whether changes should be made to your trust deed in light of the new Act.