After a gestation period of 6 years, this legislation received the Royal Assent on 30 July 2019, to become law on 30 January 2021. We now have new legislation governing express trusts in New Zealand, replacing the Trustee Act 1956.
An express trust is a relationship in which a settlor places property on trust to be held by one or more trustees for the benefit of beneficiaries or a permitted purpose. As a fiduciary, each trustee owes certain duties to beneficiaries and is accountable for how the trust property is managed and distributed.
It has been estimated that there could be 300,000 – 500,000 express trusts in New Zealand, many of them being simple family trusts where the family home is the main asset. Except for charitable trusts, every trustee of every trust needs to be aware of what the new Act means for them.
We note below just a few of the key changes affecting trustees.
Each trustee must keep, so far as is reasonable, a wide range of core documents relating to the trust. The documents are listed in section 45 and include; the trust deed, any variations, financial records, meeting Minutes, contracts entered, deeds of removal and appointment of trustees. In essence, any document related to the administration of the trust must be held.
Where there is more than one trustee, it is acceptable for each trustee to hold just the trust deed and any deeds of variation (or copies of them) as long as at least one trustee holds all the other documents and makes them available to the other trustee(s) on request (s46).
A trustee must keep the documents for the duration of the trustee’s trusteeship (s47) and, if the trust is continuing, must pass on those documents to another trustee when his/her trusteeship ends (s48).
Where previously, some documents could be destroyed after a period of time (eg 10 years for agreement for sale and purchase of real estate), all core documents must now be kept for the duration of the trust.
Providing information to beneficiaries
Trustees now have an obligation to provide information to beneficiaries. This is to ensure that beneficiaries have sufficient information to enable the terms of the trust and the trustees’ duties to be enforced against the trustees (s50). This is a significant change in the law and has major implications for trust administration.
Section 51 provides that there is a presumption that a trustee must make available to every beneficiary or representative of a beneficiary the following basic trust information:
(a) the fact that a person is a beneficiary of the trust;
(b) the name and contact details of the trustee;
(c) the occurrence of, and details of, each appointment, removal, and retirement of a trustee as it occurs; and
(d) the right of the beneficiary to request a copy of the terms of the trust or trust information.
In (d), ‘trust information’ is any information regarding the terms of the trust, the administration of the trust, or the trust property and which is reasonably necessary for the beneficiary to have to enable the trust to be enforced, but does not include reasons for trustees’ decisions (s49).
It is important to note that ‘basic trust information’ and ‘trust information’ mean different things. The latter is much wider in scope.
There is also a positive obligation for a trustee to consider at reasonable intervals whether the trustee should be making available the basic trust information (s51). We would expect that a ‘reasonable interval’ is not less frequently than annually.
It is likely that telling someone that he or she is a beneficiary of the trust will run counter to the wishes of some settlors, let alone telling those people that they have the right to request trust information. There is also the difficulty in many cases of identifying all the discretionary beneficiaries and their contact details.
Declining to provide basic trust information
Despite the presumption of disclosure, a trustee is entitled to decide to withhold some or all of the basic trust information from one or more particular beneficiaries or classes of beneficiaries (s51(2)). Before reaching a decision to withhold that information, the trustee must have considered all 13 factors specified in section 53. Where the decision is made to withhold information, the reasons for the decision will need to be recorded.
Beneficiary may request trust information (s52)
Having told a beneficiary that they can request trust information, section 52 provides that there is now a presumption that a trustee must, within a reasonable period of time, give a beneficiary or the representative of a beneficiary the trust information that person has requested.
Declining to provide requested trust information (s52)
If, after considering the s53 factors, the trustee reasonably considers that the requested information should not be given to the person, the trustee is entitled to decide to refuse the request.
Consideration of the 13 factors must be undertaken each time there is a request for information. Where two or more beneficiaries request the same information, each request must be considered independently as the 13 factors may apply differently to each request.
If a trustee refuses a beneficiary’s request for information, the trustee may be required to apply to the High Court seeking directions that his or her decision was reasonable in the circumstances.
As noted at the outset, this article has covered just a few parts of the new Act. The Act is written in easy to read language and should be required reading for all trustees. It can be found here.
As can be seen, the new Trusts Act imposes some pretty significant changes regarding a beneficiary’s right to be told about the trust and the right to receive trust information. If you are a trustee looking for guidance under the new Act or a beneficiary wanting advice about your rights, you are welcome to contact someone from our Trusts team.