This information has kindly been provided by Warwick Ayres, Principal at Ayres Legal. It is general in nature and provided for information purposes only. It is not intended as legal advice and you should take specific advice from a qualified professional before taking any action based on this information.
As you may well be aware, after many years of consultation at the end of 2019 a new Trusts Act (“the Act”) was passed in New Zealand. The new laws will apply from 30 January 2021. The information below is to bring to your attention to some important aspects of the changes.
The main purpose of the Act is to clarify and bring together, for ease of reference, the main duties of trustees. This makes the information more transparent for beneficiaries and also makes administration more intensive for trustees. The new rules apply to both new and existing trusts. Some trustees will no doubt review the benefits of retaining a trust.
This article serves to highlight some of the key aspects of the changes you should consider:
Retention of Documents
The new Trusts Act will apply from 30th January 2021, will they affect your trust? We came across this article recently which we felt may be of interest to many of our clients and is recommended important reading for anyone operating a trust.
One trustee is required to hold all copies of the relevant documents relating to the trust, and the other trustee(s) are required to hold at least a copy of the trust deed plus any variations of the trust.
Generally this means that you need to have copies of documents such as:
- Trust Deed (and any variations)
- Documents recording changes in the trustees
- Records of the property owned by the trust
- Accounts that detail the trust’s assets, liabilities, income and expenses. These do not have to be prepared by an accountant but should contain similar information.
- Trustee resolutions
- Written contracts entered into while you have been a trustee
- Memorandum or Letter of Wishes from the Settlor of the trust.
It is likely that you already hold all of the above information but it would be useful to check your records to see that you do. If not, does your Trust’s lawyer have copies of any missing documents?
One of the main points of the Act is that trustees are required to inform and provide information to beneficiaries of the trust.
Trustees are now required to pro-actively contact beneficiaries (over 18 years of age) and advise them:
- That they are a beneficiary of the trust
- The names and contact details of the trustees
- That the beneficiary can request a copy of the trust deed and trust information. Trust information means enough information that would enable them to ask further questions or take steps to check trustees are managing the trust properly. The trustees are not obliged though to give the beneficiaries their reasons for making decisions.
Trustees will need to contact beneficiaries from time to time, and contact each beneficiary as they turn 18 with the same information.
There are some situations when trustees can consider withholding some information:
- where the beneficiary is not likely to receive anything from the trust in the future
- if there are any personal or commercial confidentiality issues.
- where there are any settlor’s wishes about giving or withholding certain information.
- if the age and circumstances of beneficiaries would caution against providing information.
- if there could be a detrimental effect on all parties and family relationships concerned.
- where there are practical issues around giving information especially where there are large number of beneficiaries or the need for information to be safeguarded.
- if the circumstances surrounding why a beneficiary is asking for information or their reasons are not appropriate.
If the trustees decide not to provide information they need to apply to the High Court to ask the Court to decide if they are being reasonable in withholding information. In some circumstances the trustees can avoid applying to Court if they provide the basic trust information to at least one beneficiary in a 12 month period. However this is likely to be a limited exception.
You will appreciate that the idea behind the law changes are that if a person is named as a beneficiary of a trust, then there is a presumption that they might benefit at some point, and accordingly they should have the right to ensure that trustees are taking care of the trust property and making appropriate decisions.
The best position for a trustee to accept is that the beneficiaries of the trust will be entitled to receive information about the trust including financial information.
As a result of the upcoming changes it makes sense to give some thought to the beneficiaries of the trust, and whether you are comfortable with the list of current potential beneficiaries.
It is also worth noting looking ahead into the future, when you are no longer around, that if all the beneficiaries of a trust have reached the age of 18 years and they all agree, then they will have the right to bring the trust to an end. This will have more application where a trust was intended to benefit future generations but those future generations have a different view.
Trustees will have clear expectations and obligations and as a result will all need to be involved in the decisions made by the trust.
Because of the greater flow of information to beneficiaries trustees can expect to receive requests for information and sometimes enquiries as to whether the trustees are adequately managing the trust affairs and taking the beneficiaries’ interests into account.
The Act also enables a dispute to be referred to mediation or arbitration if the relevant parties agree, instead of Court.
One other change, is that previously a trust could only last for 80 years. Under the new Act, new trusts will be able to last for 125 years, and some existing trusts will be able to extend their lifespan to this longer period.
There are a number of other technical and administrative changes to general trust law, but we have referred to the main ones that will be most likely to affect you. This is an opportunity, especially before the Act comes into force, to consider whether there are some changes you would like to make.
We encourage to meet with your lawyer/solicitor should you have any questions or require further clarification on the above information. Alternatively, Warwick Ayres can be contacted, contact details can be found at Ayres Legal
If you would like help understanding the information in this update in respect of your investments, or would like to discuss anything else, don’t hesitate to get in touch with us.