By Nick Stewart
On 30th July, an important piece of legislation which affects many people received a Royal Assent but received little media attention. It’s the Trusts Act 2019. With New Zealand having the highest number of trusts per capita in the world, new landmark legislation has critical implications for the thousands of trustees and many more beneficiaries of these structures.
The recent final assent for the Trusts Act 2019 completes a comprehensive 10-year review by the Law Commission of the original 1956 Trustee Act, meaning this is the most significant change in New Zealand trust law in more than 60 years.
The new law, which takes effect on 31st January 2021, has profound ramifications for trustees and beneficiaries of existing trusts, as well as for anyone thinking of establishing a trust. If trusts are an important aspect of managing your assets, your first step is to get familiar with what’s changed.
Given that people transfer their assets into a trust to be looked after and nurtured by the trustees for the benefit of the beneficiaries, there are many responsibilities for the trustees. This new Act sets out in simple terms much like the ‘Road Code’, the rules of the game.
The key take-outs from the new Trusts Act 2019 are:
· the rights of beneficiaries
· the abilities for beneficiaries to hold trustees to account for their decisions
· record-keeping
· the duration of a trust, and
· the responsibilities in the governance of the trustees
This new Act has a presumption that beneficiaries will be notified that they are indeed a 'beneficiary’ and on request will be furnished with a set of financial accounts.
The supplying of financial accounts on request will be an ongoing expectation and should a beneficiary be unhappy with what they see, in terms of the performance of the trust, governance practices and the allocation of income/capital to beneficiaries, then they would be able to hold trustees to account through a dispute resolution service at little to no cost to the beneficiary.
For many beneficiaries, these changes would be like receiving a late Christmas present, and for trustees, it would be like receiving a credit card statement post the Christmas/New Year period after having hosted family & friends.
You might ask how do the trustees identify beneficiaries? The trust deed typically states who are the beneficiaries, but over time if it’s a discretionary trust, beneficiaries can usually be appointed or removed during the lifetime of the trust.
The new legislation will see a change, and it is widely expected that the number of trusts in existence will shrink and that many independent trustees will elect to exit stage left before the 'D' day, 31 January 2021.
Even though there is an 18-month transition period, for those in complex trust situations now is the time to dust off trust deeds, seek legal and financial counsel well ahead of time.
Juliet Moses, partner at TGT Legal, who specialises in trusts and succession planning, says that people with trusts should not leave it to the last minute to seek advice and indeed clients are already asking how the new law will impact them. There won’t be a “one size fits all” answer.
Unfortunately, it is quite an adjustment for many when a 60-year old legislation goes through modernisation.
Many have said this is an intrusion on the way they manage their assets and the structures that they carefully set up over many decades. However the counter to that perception is that a significant slice of New Zealand's financial capital in form of shares, bonds, lands, businesses, homes, are owned by trusts and when you reflect on it, it's appropriate that New Zealanders manage their assets well and that the governance and management follow global best practice.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation.