1 October 2020

The Trusts Act 2019 (“the Act”) comes into force on 30 January 2021 and brings with it several important changes that increase trustee responsibilities. This includes new trustee duties as well as new beneficiary disclosure obligations and a requirement to respond to beneficiary requests for further information.

In order to be able to comply with the Act’s requirements when they take effect in January 2021, trustees and their advisers should take steps now to determine the future of the trust and the appropriate course of action, if the trust is to be retained.

Trustee duties

The Act provides for both mandatory trustee duties and default trustee duties. While mandatory duties have traditionally been considered an essential component of a valid trust, the Act now sets these duties in stone.

The mandatory duties for trustees are they must:

• Know the terms of the trust.

• Act in accordance with those trust terms.

• Act honestly and in good faith.

• Act for `the benefit of beneficiaries or the trust’s purpose.

• Exercise their powers for a proper purpose.

In addition, the Act establishes a range of default duties that apply to trustees unless they are specifically excluded by the trust deed. These default duties require that trustees:

• Exercise reasonable skill and care.

• Invest prudently.

• Do not exercise trustee powers for their own benefit.

• Consider actively and regularly whether the trustee should be exercising one or more of the trustee’s powers.

• Do not bind or commit trustees to a future exercise of discretion.

• Avoid conflicts of interest.

• Act impartially.

• Do not profit from their position.

• Do not act for reward.

• Act unanimously.

Many existing trust deeds amend or exclude at least some of these default duties. For example, some trust deeds allow trustees to exercise powers for their own benefit (as many trustees are also beneficiaries) and therefore vary at least two of default duties (the duty not to exercise powers for their own benefit and the duty to act impartially). Other trust deeds may limit the obligation to invest prudently, to allow ownership of residential properties to be occupied rent free by beneficiaries. And professional trustees generally require the trust deed to authorise payments to them for their trustee services.

Beneficiary disclosure obligations

The Act provides that trustees must issue beneficiaries with “basic trust information” without beneficiaries having to ask for it.

The basic trust information to be provided to all beneficiaries includes:

• Confirmation of the person’s role as a beneficiary of the trust.

• The name and contact details of the trustee(s).

• The occurrence and details of, each appointment, removal, and retirement of a trustee as it occurs.

• The right of the beneficiary to request a copy of the terms of the trust or trust information.

A trustee is required to consider at reasonable intervals whether the trustee should be making the basic trust information available.

There is a presumption that a trustee must, within a reasonable period, give a beneficiary or the representative of a beneficiary the trust information that person has requested.

Trustees will not have an absolute obligation to disclose information to beneficiaries when asked to do so, rather trustees will retain some discretion about what to disclose. However, when exercising this discretion trustees must consider the 13 factors specifically listed in section 53 the Trusts Act 2019 before making their final decision. Those factors include considerations such as the nature of beneficiary interests, beneficiary ages, any confidentiality obligations and the effect the release of information could have on family relations.

Should the Trust remain in existence or be wound up?

When considering the impact of the Act, trustees should consider whether there is an ongoing need for the trust, or perhaps consider winding up the trust.

This decision will need to take into account what the trust was settled for – what was its purpose? Is the purpose for which the Trust settled still valid or appropriate? For example, if the trust was settled for creditor protection, is someone associated with the trust in business, or do they have high risk investments?

You should also consider who benefits from the trust. Are those people still likely to benefit from the trust? Are there people who can still benefit?

Finally, we suggest trustees consider what assets are held in the trust. Has there been an uplift in value of those assets? Is the trust earning income?

Working with a specialist tax adviser will help ensure a trust is being actively and properly managed so that it achieves what it is designed to do. Working closely with fellow legal professionals, a tax adviser can prepare a review document that is then discussed with fellow trustees, the family and the legal adviser. A tax adviser can help:

• Review the terms of trust documents to ensure they will comply with the requirements of the Act - particularly in relation to default and mandatory trustee duties.

• Ensure that all trustees keep the required trust records.

• Actively consider what information should be supplied to beneficiaries and whether any beneficiaries need to be excluded.

• Ensure trustees have an investment strategy where appropriate.

• Ensure trustees have regular meetings to ‘actively and regularly’ consider the exercise of their powers.

• Manage any taxation issues that may arise if the trust is wound up, considering who should benefit from the final distributions.

If you would like your trust reviewed, please contact your Findex adviser. If you would like more information on the Trusts Act 2019, please get in touch with the Findex Tax Advisory team.

Disclaimer:

Findex NZ Limited, trading as Findex

While all reasonable care is taken in the preparation of the material in this communication, to the extent allowed by legislation Findex accept no liability whatsoever for reliance on it. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice. Findex assumes no obligation to update this material after it has been issued. You should seek professional advice before acting on any material.

The information contained is of a general nature only and does not take into account your objectives, financial situation or needs. You should consider whether the information is suitable for you and your personal circumstances. You should seek personal financial advice before acting on any material.

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October 2020.