June 2018 . . Trusts play an important role in the New Zealand legal landscape. There are over 200,000 trust-owned kiwi homes, and an estimated total of 500,000 trusts in New Zealand. Yet our trust law is convoluted and outdated. Trustees need to trawl through several Acts and a multitude of case law to figure out what is expected of them.
Trust Law Reform
A Bill is currently at Select Committee which is set to transform current trust law principles into a simple, clear and modern Trust Act that supports everyday trustees to find and understand the law.
The Trust Bill proposes a number of changes such as clearly setting out trustees’ obligations, extending the maximum lifetime of trusts from 80 years to 125 years, and generally making trust administration more efficient.
The Trust Bill imposes the following mandatory duties on all trustees:
The Bill also imposes default duties on trustees which apply unless varied by the Trust Deed.
The Bill imposes a duty on all trustees to keep originals or copies of the Trust Deed and any variations, and to ensure that at least one trustee keeps all other core documents:
The following scenarios relating to the fictitious Hill Family Trust put these trustee duties into context. In each scenario at least one trustee could be in breach of their trustee duties. The Hill Family Trust lists Jack, Jill and GCA Legal Trustee 2010 Limited as its trustees and does not vary any of the default duties discussed above.
Scenario 1: Jack doesn’t pay much attention to his trust. He lets Jill handle all of the trust administration and he just signs the documents that she presents him.
Scenario 2: Jack and Jill prefer to deal with trust matters themselves and not involve Gallaway Cook Allan where they can. They want to save themselves having to pay legal fees and haven’t met with Gallaway Cook Allan since 2012 when they purchased their house.
Scenario 3: Jack and Jill have their accountant produce financial statements for the trust but they do not pass these onto Gallaway Cook Allan.
Scenario 4: Jack and Jill don’t really understand what a trust is, their duties as trustees, or the terms of the Trust Deed.
Some or all of the trustees might not be meeting their duties in these scenarios. This means that beneficiaries of the trust could take legal action against these trustees personally. The trustees should make changes to the administration of the Hill Family Trust to ensure that they are meeting their trustee duties.
In light of the Trusts Bill you may wish to consider the administration of your own trust and how you are meeting your trustee obligations. Many of the trustee duties are not new; they merely set out what is already law. Our Private Client Team is experienced in the administration of trusts and would be happy to assist you in conducting a review of your trust.