Trusts Act now in force
The Trusts Act 2019 (Act) came into force on Saturday, 30 January 2021. The Act constitutes a major reform for trust law in New Zealand. While the Act largely restates existing common law principles, the Act introduces new duties on trustees.
Who needs to read it? Why?
The Act will apply to all express trusts governed by New Zealand law. This includes trusts made from 30 January 2021, as well as existing trusts. The Act is geared towards discretionary family trusts, however its application is modified for certain kinds of trusts.
What does it cover?
The Trusts Act introduces some key changes:
- Mandatory duties: The Act restates the core duties of a trustee. Sections 23 – 27 of the Act set out the mandatory duties for trustees. These include a duty to know the terms of the trust, to act honestly and in good faith and to act in accordance with the trust deed.
- Default duties for trustees: Sections 29 – 38 of the Act set out default duties for a trustee that will apply unless modified or excluded in the trust deed. These include the duty to invest prudently, to avoid a conflict of interest and to act for no reward.
- Record keeping: The Act requires trustees to keep certain documents, including the trust deed and any document that varies the terms of the trust. In addition, documents necessary for the administration of the trust must be kept. This could include records of trust property, trustee decisions, contracts and financial statements.
- Duration of Trust: The Act repeals the Perpetuities Act 1964 and replaces it with a maximum period for a trust of 125 years (although this can be shortened by the trust deed).
- Disclosure of information: Trustees may be required to disclose ‘basic trust information’ to beneficiaries of the trust. This is information necessary for the beneficiary to be able to enforce the trust, such as the name and contact details of trustees or the terms of the trust.
- Restriction on indemnity clauses: The Act prevents a trust deed from limiting a trustee’s liability for gross negligence, in addition to dishonesty or wilful misconduct. Any clause in a trust deed that limits liability in this way is now invalid.
For certain kinds of trusts, for example specified commercial trusts eg wholesale trusts and various trusts under the Financial Markets Conduct Act 2013 eg managed investment scheme trusts, some provisions of the Act may not apply.
Trustees have had the benefit of an 18-month period to move their trusts into compliance with the new Act. In this time, trustees should have amended their trust deeds to reflect the new changes and become familiar with the new duties on trustees in the Act.
If trustees haven’t done so already, they should check to see how the Act will affect them. This is especially important given that default duties and other provisions in the Act will now apply if they are not modified or excluded in the trust deed.
If you have any questions in relation to the Act or how this may affect any of your arrangements, please contact one of our experts.