The Trusts Act 2019 was passed on 30 July 2019 and replaces the Trustee Act 1956. It comes into effect on 30 January 2021.

The 2019 Act modernizes existing trust law, provides better guidance for trustees and beneficiaries, and makes it easier to resolve disputes.

So what are the key changes?

1. A description of the key features of a trust to help people understand their rights and obligations.

That includes:

• Defining a trust as: a structure where a trustee holds and deals with trust property for the benefit of people who are described as beneficiaries for a permitted purpose and the trustees are required to act in the best interests of the beneficiaries;
• Stating that a sole trustee cannot be a sole beneficiary of a trust;
• Increasing the maximum life of a trust from 80 years to 125 years;
• Setting the minimum age you have to be in order to hold a formal trust role as 18 years of age.

2. A list of mandatory and default trustee duties to help trustees understand their obligations.

Mandatory duties

Mandatory trustee duties cannot be modified or excluded by the terms of a trust and include:

•  The duty to know the terms of a trust;
•  The duty to act in accordance with the terms of a trust;
•      The duty to act honestly and in good faith;
•       The duty to act for the benefit of beneficiaries or to further the permitted purpose of a trust;
•  The duty to exercise powers for a proper purpose;

Default duties

Default trustee duties can be modified or excluded by the terms of a trust and these duties include:

•  The general duty of care;
•  The duty to invest prudently;
•      The duty not to exercise a power for a trustee’s own benefit;
•      The duty to consider the exercise of a power;
•      The duty not to bind or commit trustees to future exercise of discretion;
•      The duty to avoid a conflict of interest;
•       The duty of impartiality;
•       The duty not to profit;
•      The duty of a trustee to act for no reward;
•      The duty to act unanimously.

3. Requirements for managing trust information and disclosing it to beneficiaries.

Information for Trustees to Keep

The Act sets out what information trustees must keep and how long documents must be kept.

Each trustee must keep the core trust documents which are:

•  Copies of the trust deed and any variations to it;
•      Records of the trust property that identify the assets, liabilities, income and expenses of the trust;
•  Records of decisions made;
•      Any written contracts entered into;
•      Any accounting records and financial statements prepared;
•      Documents of appointment, removal and discharge of trustees;
•      Any letter or memorandum of wishes from the Settlor of the Trust.

The trust documents need to be kept for the duration of the trusteeship and must be passed on when a trusteeship changes.

Trustees will have to either keep their own copies of ‘core trust documents’ or ensure that at least one of the other trustees holds all of the core trust documents and will make them available on request. If a trustee is not confident in their fellow trustees’ ability with paperwork, they will need to keep these documents personally.

Disclosure

The Act favours keeping beneficiaries informed and clearly outlines that basic trust information is to be provided to every qualifying beneficiary. The basic information is:

•  The fact that a person is a beneficiary of a trust;
•      The name and contact details of the trustee;
•       Details of changes in trustees;
•      The right of the beneficiary to request a copy of the terms of the trust or trust information.

In addition to the basic information, there is a presumption that a trustee must, within a reasonable period of time, give a beneficiary or their representative the trust information that person has requested, unless there is a good reason to decline such a request. The Act outlines a number of factors trustees have to take into account in deciding whether it is reasonable to decline an information request.

Trustees may only refuse to provide information to beneficiaries after considering a series of factors set out in the legislation and the trustees must consider these factors when deciding whether these apply in the circumstances, including:

•  The nature and interests of the beneficiary (including whether the beneficiary is likely to receive trust property in the future);
•      The nature and interests of other beneficiaries;
•      The intentions of the settlor when the trust was established;
•      The age and circumstances of the beneficiary in question and the other beneficiaries of the trust;
•      The effect of giving the beneficiary the information;
•      The nature and context of any request for further information;
•      Any other factor a trustee reasonably considers is relevant. Trustees will have to carefully consider any decision not to disclose information.

More Key Changes: 

4. Practical and flexible trustee powers, allowing trustees to manage and invest trust property in the most appropriate way;

5. Provisions to support cost-effective establishment and administration of trusts (such as clear rules on the variation and termination of trusts);

6. Options for removing and appointing trustees without having to go to Court to do so;

7. Modern dispute resolution procedures. In the interest of keeping trust related disputes out of Court where possible, the Act provides for alternatives such mediation or arbitration.

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. We would be happy to assist in your journey. Please feel free to contact Pat Rotherham at patrotherham@parryfield.com or Luke Hayward at lukehayward@parryfield.com should you require assistance.

 

Are you a beneficiary wondering what trust information you are entitled to, or a trustee concerned with what information you may be required to provide to a beneficiary?  This article considers the current New Zealand legal position on the rights that beneficiaries have to trust information, and the changes that will result from the new Trusts Act, which was passed into law this year (2019).

In the past, it has often been the case that only the trustees knew about the family trust “secret”. The new Trusts Act dramatically changes this from 30 January 2021 by developing further the current legal principles established in the following 2 cases:

Erceg v Erceg

This 2016 Supreme Court case involved the estate of Michael Erceg, a beer magnate who died in a helicopter accident. The Court said that the trustees of a trust must give beneficiaries certain basic trust documents on request to ensure that a trust is administered properly and the trustees are held accountable for their actions. Ultimately, the ability to see trust information is based on the status and motives of the beneficiary applying to the Court. In this case, the Court refused to grant Ivan Erceg’s request for trust information because his conduct toward the other beneficiaries was confrontational and “he was on a fishing expedition”. However, as a primary beneficiary of the Accorn Foundation Trust, he would otherwise have had a good case for receiving basic trust documents, comprising:

• The trust deed;
• Any variations to the trust deed;
• Financial statements; and
• Potentially minutes of meetings/resolutions, but with reasons deleted.

Addleman v Lambie Trustee Limited

In this 2019 Court of Appeal case, Mrs Addleman was both a discretionary and a final beneficiary of her father’s Lambie Trust, along with her estranged sister, whose company Lambie Trustee Limited was the Trust’s sole trustee.  Mrs Addleman only became aware of the Trust’s existence when she received 4.25 million as a “full distribution of funds” from the Trust.  Wanting to know more, she initially requested comprehensive information about the Trust from its inception 12 years earlier.

Applying the principles established in Erceg above, the Court said that as a close beneficiary of the Trust Mrs Addleman was entitled to see trust documents, albeit within a narrower category than those she initially requested, and that she should receive the following:

• Financial Statements;
• Minutes of meetings, but without reasons for trustee decisions; and
• Any legal opinions and other advice obtained by the trustees which was funded by the Trust.

New Trusts Act Changes

The new Trusts Act significantly changes the rights of beneficiaries to trust information.    While trusts were once allowed to more easily remain a secret, under the new Trusts Act trustees must disclose basic information to at least one beneficiary without a request being made.  This is the Presumption of Notification.

It is important to note that there is a second presumption created by the new Trusts Act, which requires a trustee to provide additional information within a reasonable time to a beneficiary who requests it.  This is the Presumption of Disclosure.

What is “basic trust information” under the new Trusts Act?

Basic trust information is the information that tells you about the trust – what its purpose is, who the parties to the trust are, etc. It includes:

• The fact that you are a beneficiary;
• The names and contact details of trustees;
• Details of each appointment, removal and retirement of a trustee as it occurs; and
• The right to request a copy of the trust deed and additional information about the trust’s administration and its assets (but not reasons for trustees’ decisions).

However, as can be seen from the following, these two presumptions may be totally or partially ignored.  Trustees can rely on numerous factors to deny beneficiaries this basic trust information, such as:

• The nature and interests in the trust held by both the beneficiary applying for information and the other beneficiaries of the trust;
• Confidentiality;
• The age and circumstances of the applicant and the other beneficiaries;
• The effect of giving the information on all related parties;
• The practicality of giving the information;
• The nature and context of the request;
• Any other factor that the trustee reasonably considers.

Differences between the current Erceg Approach and the new Trusts Act

In the Erceg case, the Court said that although a primary or close beneficiary can ask for, and expect to receive, basic trust information on request, they’re not automatically entitled to it. Disclosure will depend on the wider interests of all beneficiaries as a whole. So currently, there is no Presumption of Disclosure.

However, the Trusts Act goes further than the Erceg case and ensures that at least one beneficiary must receive basic trust information on request (Presumption of Disclosure), but also, even if none has been requested (Presumption of Notification).  This is to ensure that the trustees are kept accountable and are discharging their obligations to the beneficiaries properly.

If the trustees believe that one or more of the above factors justifies their denying such information from all beneficiaries for more than 12 months, then they must apply to the High Court for directions.  The Court then decides if the trustees’ decision is reasonable and if so, how they can otherwise be held accountable for their actions if none of the beneficiaries are advised of their status or informed of basic trust information. Applying to the Court can be avoided if such information is disclosed to at least one beneficiary.

In summary, under the New Trusts Act, as a beneficiary, you can expect to see the trust deed, names of the current trustees and some financial information unless the trustees consider otherwise under the above list of factors.

When the new Act is fully operative, be aware that the obligations of trustees, and in particular the rights of beneficiaries, are set to dramatically change, as may the dynamics of some family relationships.

Every situation is unique, so please discuss your particular case with a professional advisor who can provide a tailored solution to you.

Pat Rotherham – patrotherham@parryfield.com

 

1. Govern don’t manage: Avoid getting into too much of the detail of how the trust operates. You shouldn’t be talking about minor issues at the Board level.
Yes! What is our strategic plan for the next 5 years?
No! Can we save $7 per month by purchasing paper in bulk?

Your rating out of 10?______

2. Have clear agendas: Don’t let meetings turn into a conversation that starts “what are we talking about again”? Have a clear defined standing agenda that then has key points added.
Yes! Circulate agenda in advance along with relevant pre-reading. Read it.
No! Show up late and try to remember what was discussed last time, with no agenda to guide the meeting (and ensure it finishes on time).

Your rating out of 10?______

3. Board Charters: This is a document that can provide overall guidance – set out role, relationships, how decisions made, procedures, inductions, committees.
Yes! Consider having a Board Charter and clearly set guidance out.
No! Continue without clear thinking and strategy behind what you are doing.

Your rating out of 10?______

4. Know your Trust purpose: It is surprising how many Trustees are unclear on the actual purpose and maybe have never even read the Trust Deed to see the original purposes.
Yes! Be clear on what the purpose is and let it guide decisions.
No! Put the Trust Deed in a drawer and not look at it for 10 years.

Your rating out of 10?______

5. Know the purpose behind the purpose: Think about and understand how the day to day and month to month work is of value – know your “why”. In many cases there are deep needs which are being met by each trust
Yes! Know your why (if you have not seen the Simon Sinek video, google it)
No! Don’t forget the real reason behind the activity and work being done.

Your rating out of 10?______

6. Plan ahead: Think long term not short term – discuss finances, properties, succession for your board, strategy, growth, is this Trust relevant …
Yes! In 5 years I think our landscape will have changed so here is what we need to do to prepare…
No! Where shall we hold our next meeting?

Your rating out of 10?______

7. Trust board size: I think optimum size is 4 to 6 Trustees. Many Trust Boards are more, but once you get above 8 the opportunity for participation drops. This results in a drop of enjoyment (less sense of contribution) and also reduces the quality of decision making because discussion is more limited.
Yes! Keep boards efficient by not growing them too large.
No! Don’t get too big – boards that have crept up above 10 are like a parliament and are also far more difficult to chair.

Your rating out of 10?______

8. Increasing need for professionalism as a Trustee: There is a growing need to create a culture of continuous improvement or learning within the Trusteeship itself. Have a view that you can never stop learning. Governance is a high calling.
Yes! Trustees ought to be encouraged to read material that takes them a bit further in their journey of understanding what it is to a Trustee and how to contribute.
No! Just wing it.

Your rating out of 10?______

9. Who should be on a Trust Board? In a small charity this may be a luxury but the ideal answer is someone who has both a strong belief in the vision and purpose of the Trust as well as a particular skill set that the Trust most needs.
Yes! Consider skill sets around tangible matters e.g. finances, property matters, operational issues but also the soft issues – the ability to think strategically, a high EQ and focus on building a great team.
No! Don’t focus on one set of skills instead aim for a diversity of thought.

Your rating out of 10?______

10. The right Chair? Good outcomes are largely the result of effective meetings and effective meetings are not possible if the Chair is not suited to the task. A good Chair creates an environment of respect, fair opportunity to speak, but without restricting candor and ensuring discussions do not go on any longer than necessary and a clear conclusion is reached. Also, if the organisation is large enough to have employed staff then the relationship between the Chair and the Chief Executive is a critical one.
Yes! Have those awkward conversations to ensure that the person most suitable to facilitate good meetings is the Chair.
No! Like all of these points, don’t continue on if change is needed.

Your rating out of 10?______

Some resources:

Simon Sinek, “The Power of Why” – YouTube Video

“Joan Garry’s Guide to Non-profit Leadership (because non-profits are messy)”.

“Good to Great and the Social Sectors” – Jim Collins (speaker on commercial/corporate leadership, but has good things to say for charity leadership as well).

“Boards that Lead” – Charan, Carey and Useem.

In terms of podcasts there a number of great leaders who speak to the leadership area including Andy Stanley and Carey Nieuwhof.

Seeds is a podcast I have been doing each Tuesday interviewing people for an hour on what they do and why – often this includes people who have started or run charities www.seeds.libsyn.com

 

Should you need any assistance with these, or with any other Trust and Asset matters, please contact Steven Moe at stevenmoe@parryfield.com  (+64 3 348 8480).