Justice Committee presents its report on Trusts Bill
The Justice Committee has reported back on the Trusts Bill.
A link to the final report (together with a copy of the marked-up revised Bill) is available here.
Who needs to read it? Why?
The Bill is of interest to anyone who is a trustee, settlor or beneficiary of a trust (whether private or commercial in nature) or who transacts with or through trusts for any business activity or structured transaction purpose. Financial market participants often fall into one of these categories.
The Bill is not limited to private trusts, despite various submissions to this effect, and impacts on all express trusts (as defined in the Bill) – in short, the Bill impacts on most trusts.
The Bill has its genesis in concerns arising out of private trusts and their significant use in New Zealand (estimates suggest between 300,000 and 500,000 trusts are in use in New Zealand), with the perception that private trusts weren’t being properly administered, weren’t properly understood and beneficiary rights weren’t necessarily being protected.
What does it cover?
The intention of the Bill is to replace the existing Trustee Act 1956 and Perpetuities Act 1964 which are considered “outdated and overly complex” and to “take the most fundamental principles from the common law [relating to trusts] and put them in accessible legislation”.
For financial market participants, some key points of interest are:
- The transition period for introduction of the Bill remains at 18 months from the date on which it receives the Royal assent, despite some submissions suggesting a longer lead time might be appropriate.
- A new provision has been included requiring persons who are paid to advise on the creation of a trust (which would include legal advisers) to ensure that the initial settlor is aware of the meaning and effect of any modification or exclusion of a default trustee duty – this is an interesting addition for those operating in the commercial trust area, who are generally experienced and sophisticated market participants (and for their advisers too).
- Following various submissions suggesting some concerns around the concept of “gross negligence” the Bill includes a new provision setting out the factors a court must have regard to when considering whether a trustee has been grossly negligent. These include the seriousness of the breach, the trustee’s knowledge and intentions relating to the breach and the type of trust, including the degree to which the trust is part of a commercial arrangement.
- Those in the retirement village space will be pleased to see new provisions (by way of amendment to the Retirement Villages Act 2003) allowing regulations to be made exempting any trust, trustee, statutory supervisor, operator or other person from the application of any provision of the Bill.
- Various amendments have been made to the definition of “specified commercial trust”, although it remains a term fraught with potential interpretation difficulties, with more than 15 separate defined terms provided for the purpose of determining whether a specified commercial trust exists.
It is an exceedingly difficult task to modernise and improve an area of law that has evolved through hundreds of years of common law. The Bill generally achieves its stated purpose of making the law of trusts more accessible and the Committee should be commended on its work.
However, financial market participants who are commercially experienced and sophisticated and are generally well advised and able to negotiate appropriate protections or otherwise mitigate their exposure may be frustrated that large parts of the Bill remain applicable to them.
The Bill will now go back to Parliament for debate and it will decide whether it will incorporate the Committee’s amendments.
If you have any questions in relation to the Bill or are considering how these changes affect you or your business, please contact one of our experts.
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