BY JACINDA MITCHELL
On the 1st August 2017, the Trusts Bill 2017 was introduced to New Zealand to replace both the Trustee Act 1956 and the Perpetuities Act 1964. The Trusts Bill, which is the first significant change made to New Zealand trust law in 60 years, would see a clarification and update to the present Acts which are deemed as outdated, not current with today’s practise of trust law, and causing unnecessarily legal costs due to the complicated trust administration and advice sought for the complex out-of-date law.
Hon Amy Adams, issued a media release which set some of the key proposed changes that the Bill would make.
These key changes included:
• a description of the key features of a trust to help people understand their rights and obligations;
• mandatory and default trustee duties (based on established legal principles) to help trustees understand their obligations; • requirements for managing trust information and disclosing it to beneficiaries (where appropriate), so they are aware of their position;
• flexible trustee powers, allowing trustees to manage and invest trust property in the most appropriate way; • provisions to support cost-effective establishment and administration of trusts (such as clear rules on the variation and termination of trusts); and
• options for removing and appointing trustees without having to go to court to do so.
The Bill establishes that it will only apply to express trusts that are governed by New Zealand law. However it also allows for the court, where deemed necessary, to apply the Act to a resulting trust, a constructive trust, or a trust that is not an express trust but is recognised at common law or in a equity as being a trust, as long as they are governed by New Zealand law.
The Trusts Bill reforms the common law rule against perpetuities which confusingly stipulates that a gift of a trust will not be enforced if the subject of the gift is not known by the end of 21 years, after the death of everyone who was alive at the time of the creation of the gift. The new Bill removes this perplexity and provides that the maximum duration for an express trust is 125 years and that the terms must specify or imply a duration less than this. It allows for trust property to be distributed in accordance with the trust terms when that trust expires and if there are no express terms, for the trust property to be distributed in a matter consistent with the trust objectives.
It establishes rules relating to the extent that trustees can limit or exclude their liability. An example of this is that the terms of the trust cannot exclude a trustee from being liable for a breach arising from dishonesty, wilful misconduct or gross negligence. At least one beneficiary must also proactively be disclosed trust information from a trustee to enable to the trust terms to be known about and thus to be enforced. The trustee still has some discretion about how much is given but at the very least, basic information must be provided.
Several common law jurisdictions worldwide have taken the same initiative by updating their trust legislation. New Zealand’s new trustee bill however takes it a step further by setting it out in the legislation the range of trustee duties, establishing a maximum duration period for trusts, and the characteristics of an express trust. For example, the Canadian proposed Uniform Trustee Act abolishes the rule against perpetuities but does not establish a maximum duration period. The United Kingdom has also bought in legislation that requires extensive information to be provided regarding a trust. However it also has implemented a trust register for all ‘relevant’ trusts- trusts that have liability to one or more of the United Kingdom’s Relevant Taxes, which include: income tax, capital gains tax, inheritance tax, stamp duty land tax, stamp duty reserve tax, and Scottish land and buildings transaction tax. However in New Zealand, foreign trusts must registered with Inland Revenue whether or not the trust derives taxable income.
Keeping up with the movement on the worldwide change in trust legislation, the Trusts Bill 2017 would without a doubt resolve the issue of a common lack of understanding about trusts from the former, outdated legislation and allow for a new plain language Act that is practical and facilitates an efficient operation of trusts and resolution of trust related disputes.