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Impactful changes ahead in major trust law reform

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Ben Coleman
01-Nov-2020
Asset planning, Estates, Family Law, Law Changes, People, Property Law

You may be aware that there is a new Trusts Act coming into force on 30 January 2021 that will govern the law relating to the administration of family trusts.  This legislation is the first major trust law reform in New Zealand in 70 years.  The key changes are aimed to make trust law more accessible to the public and to strengthen the ability of beneficiaries to hold trustees to account. 

One of the major changes is the classification of trustee duties as either “mandatory” or “default”.   “Mandatory” duties must be performed by trustees and may not be modified or excluded by the terms of the trust.  “Mandatory” trustee duties include knowing the terms of the trust, acting in accordance with the terms of the trust, acting honestly and in good faith, acting for the benefit of the beneficiaries or to further the purpose of the trust, and exercising power for proper purpose.

“Default” trustee duties may be modified or excluded.  “Default” trustee duties include the following:

  • General duty of care
  • Duty to invest prudently
  • Duty not to exercise power for own benefit
  • Duty to consider exercise of power
  • Duty not to bind or commit trustees to future exercise of discretion
  • Duty to avoid conflict of interest
  • Duty of impartiality
  • Duty not to profit
  • Duty to act for no reward
  • Duty to act unanimously

There is also the requirement for trustees to maintain core trust documents and to keep appropriate records, contracts, accounting and financial statements and memoranda of wishes.  There are also disclosure requirements including advising people that they are beneficiaries of a trust and providing them with basic trust information.

No longer will it be good enough to be relaxed about the administration of a family trust. Trustees will be required to be diligent.  We are recommending to all clients that their trust is reviewed annually to ensure that trustees are complying with the terms of the new Trusts Act and that all assets in trust are appropriately maintained and protected.

The new Trusts Act requires the trust’s advisor to explain the effect of modifying any duties of the trust.  We advise that you contact us to discuss how the new Trusts Act will impact on your family trust and to consider with us the future purpose and operation of your trust.