Trusts Act 2019

After several years in the making, New Zealand now has a new Trusts Act.

This is the most significant trust reform in over 60 years and is relevant to many trustees. The Act includes a list of mandatory and default trustee duties. Default duties apply unless they are modified or excluded by the terms of the trust. The Act also sets out trustees’ obligations to retain records and provide information to beneficiaries.

Overview of the Act

There are an estimated 300,000 to 500,000 trusts in New Zealand including community, charitable, commercial and family trusts. The Act sets out basic trust matters relevant to settlors, trustees and beneficiaries, and replaces the Trustee Act 1956. It aims to improve accessibility to the law of trusts and help people better understand their legal rights and obligations. It also aims to improve the governance of trusts.

Many trustees, including trustees of small family trusts and charities, will be subject to provisions of the Act. It is intended that all express trusts (ie trusts generally formed deliberately as a result of a settlor’s intention to create a trust) will be governed by the Act, except to the extent that some types of trusts are governed by specific legislation. There are exemptions under the Act for certain trusts including some specified commercial trusts.

Trustee duties

Trustee duties are central to good governance and they reflect the fiduciary nature of trustees and promote accountability. Historically, trustee duties have largely been set out in case law and many trustees may not be fully aware of their duties.

The Act now sets out mandatory and default trustee duties all in one place. Default duties apply unless they are modified or excluded by the terms of the trust. The terms of a trust may also impose additional duties on a trustee.

Mandatory duties

The duty to know the terms of the trust
The duty to act in accordance with the terms of the trust
The duty to act honestly and in good faith
The duty to hold or deal with trust property, and otherwise act, for the benefit of the beneficiaries or for the permitted purpose
The duty to exercise the powers of a trustee for a proper purpose.

Default duties

The general duty of care
The duty to invest prudently
The duty not to exercise any power directly or indirectly for the trustee’s own benefit
The duty to actively and regularly consider the exercise of the trustee’s powers
The duty not to bind or commit trustees to the future exercise or non-exercise of a discretion
The duty to avoid a conflict of interest
The duty of impartiality
The duty not to make a profit from the trusteeship of a trust
The duty to act for no reward
The duty to act unanimously.

Breach of trust and limitation of liability

The Act provides that the terms of a trust must not:

limit or exclude a trustee’s liability for any breach of trust arising from dishonesty, wilful misconduct or gross negligence or
grant a trustee any indemnity against the trust property in respect of liability for breach of trust arising from the trustee’s dishonesty, wilful misconduct or gross negligence.

The Act retains the court’s ability to relieve a trustee who is or may be personally liable for any breach of trust from personal liability for the breach. This applies if it appears to the court that the trustee has acted honestly and reasonably and the trustee ought fairly to be excused for the breach of trust.

Providing information to beneficiaries

The Act reforms the provision of information to beneficiaries with the purpose being to ensure beneficiaries have sufficient information to enable the terms of the trust and the trustees’ duties to be enforced against the trustees. There are two parts:

a presumption that trustees must notify beneficiaries of ‘basic trust information’ and
a presumption that trustees must give ‘trust information’ on request.

Basic trust information

There is a presumption that trustees must make available to every beneficiary ‘basic trust information’ which is defined as follows:

the fact that a person is a beneficiary of the trust
the name and contact details of the trustee
the occurrence of, and details of, each appointment, removal, and retirement of a trustee as it occurs
the right of the beneficiary to request a copy of the terms of the trust or trust information.

Trustees must consider at reasonable intervals whether they should be making the basic trust information available.

Other trust information

Beneficiaries may also request from trustees ‘trust information’ which is defined as information:

regarding the terms of the trust, the administration of the trust or the trust property and
that is reasonably necessary for the beneficiaries to have to enable the trust to be enforced.

Trust information does not include reasons for trustees’ decisions.

Procedure for deciding whether a presumption applies

A procedure under which trustees can decide against providing information is set out in the Act. There are a number of factors to consider including:

the nature of the interests in the trust held by the beneficiary and the other beneficiaries of the trust
whether the information is subject to personal or commercial confidentiality
the expectations and intentions of the settlor at the time of the creation of the trust (if known) as to whether the beneficiaries as a whole and the beneficiary in particular would be given information
the age and circumstances of the beneficiary
the effect on the beneficiary of giving the information
the effects on the trustees, other beneficiaries of the trust, and third parties of giving the information.

Retention of core trust documents

Each trustee must keep (so far as is reasonable) the following:

the trust deed and any other document that contains terms of the trust
any variations made to the trust deed or trust
records of the trust property that identify the assets, liabilities, income and expenses of the trust and that are appropriate to the value and complexity of the trust property
any records of trustee decisions made during the trustee’s trusteeship
any written contracts entered into during that trustee’s trusteeship
any accounting records and financial statements prepared during that trustee’s trusteeship
documents of appointment, removal, and discharge of trustees (including any court orders appointing or removing trustees)
any letter or memorandum of wishes from the settlor
any other documents necessary for the administration of the trust
any documents referred to above that were kept by a former trustee during that person’s trusteeship and passed on to the current trustee.

Where there is more than one trustee, each trustee must hold copies of the trust deed and any variations and be satisfied that at least one trustee holds copies of the other documents specified above and that these will be made available to the other trustees on request. Trustees may keep other documents as well.

Dispute resolution and court powers

An alternative dispute resolution process (eg mediation) for all trusts is set out in the Act. The process also covers internal disputes between trustees. The courts have also been provided with wide powers to review acts, omissions and decisions of trustees.

Next steps for trustees

The Act comes into force in January 2021 allowing trustees 18 months to ensure their trusts comply. We encourage trustees to review their trust deeds and seek professional advice if needed.

For more see: