Lisa Small, Senior Associate, Duncan Cotterill

The Trusts Act 2019 (the Act) came into force on 30 January 2021, being the first major trust law reform in New Zealand in 70 years. The Act, which is aimed at making trust law more accessible, increases the obligations of trustees and strengthens the ability of beneficiaries to hold trustees to account.

There has been significant publicity on the Act, with many articles and seminars discussing the main provisions of the Act, including:

1. The division of trustee duties into mandatory duties (which must be performed) and default duties (which can be excluded or modified in the trust deed);
2. The obligations on trustees in respect of disclosure of trust information to beneficiaries;
3. The requirement to keep core trust records (e.g. trust deed, records of trust property and trustee decisions).

If you have a trust or are a trustee of a trust, then ideally you would have already followed these key steps. If not, now is the time to consider what action you need to take to keep your Trust up to date. Here's a summary of the four key actions you need to consider in respect of any Trust of which you are a Trustee, or a beneficiary.

1. Have you discussed the status of the Trust and the circumstances of the settlor(s) to confirm if the Trust is still required?

Trusts are an important part of estate planning and, in the right circumstances, provide an excellent mechanism for managing assets. The Trust may, however, have served its original purpose (e.g. business protection for the settlor(s)) and no longer be required. Consider if the Trust is still needed or should be wound up.

2. Have you recently convened a Trustee meeting?

The Trustees, and possibly the settlor and/or appointor, should meet to discuss the new Trusts regime and confirm that each Trustee is prepared to take on the additional responsibilities imposed under the Act. A change of Trustees may be required by way of a retirement (or removal) and appointment of Trustees, with a subsequent vesting of Trust property in the names of the new Trustees to be completed.

The Trustees should prepare for meeting their obligations in respect of disclosure of Trust information to beneficiaries, for example:

• preparing a list of beneficiaries (individual and classes, as applicable);
• preparing a checklist of the requirements of the disclosure regime and the procedure to be followed by the trustees;
• following the checklist for each identified beneficiary to determine what, if any, information will be given in accordance with the Act; and
• preparing communications to go to beneficiaries.

Prudent Trustees should also:

• review their current processes for making and recording Trustee decisions and identify any changes required, to ensure the record keeping obligations imposed under the Act are met; and
• agree a schedule for regular meetings (e.g. annual) so the Trustees can actively and regularly consider the exercise of their powers and observe their duties - for example, repeating the exercise of disclosing Trust information to take account of beneficiaries who have come of age or had a change of circumstances in the previous 12 month period.

3. Have you reviewed the Deed of Trust to ensure it is fit for purpose?

It may be, given the passage of time since the Trust was established, that the Trust Deed should be varied to ensure it is fit for purpose and gives effect to the settlor’s settlement intentions.

The person holding the power of appointment and removal of beneficiaries should consider whether the classes of beneficiaries are correct or need to be narrowed (e.g. the settlor has had children and/or grandchildren, and beneficiary classes of wider family members are no longer relevant).

The Trust Deed should be checked to see if there is an ability to vary the Trust Deed. It is important to analyse the wording of the variation clause to ensure the trustees do not go beyond the scope of their power to vary and the proposed changes are permitted

If there isn’t an ability to vary the terms of the trust, then an option to explore is a resettlement of the Trust assets on a new, more modern Trust.

4. Have you checked the Trust records are current and complete?

The Trustees must keep, so far as is reasonable, the core documents listed in the Act. It is permissible for one Trustee to hold the core documents, however each Trustee must at least hold a copy of the Trust Deed and any variations made to the Trust Deed. Often in the past Trust documents have been held by just one Trustee or by the Trust’s professional advisers, so it is important to check the status and location of core Trust documentation.

In Summary...

Some of the new requirements stemming from the Act may appear onerous, but they should be seen as routine and essential to good Trust administration, ensuring your Trust is well run and compliant. A Trust that is administered in accordance with the Act will achieve better outcomes for all involved: settlors, trustees and beneficiaries.

If you need advice on the Act and other Trust matters, contact your professional advisers. Your Baker Tilly Staples Rodway adviser can refer you to the best person to provide advice. Often this will be your lawyer.

Another helpful resource is this piece from our in-house National Technical Manager & Risk Specialist Nicola Hankinson.