Law

Changes to New Zealand Trust Law

By Bethan Boscher, Morrison Kent

New Zealand’s current trust law was enacted over 60 years ago. Like many other trust laws, few statutory updates have been made to it, with the trust law instead being developed through the Courts and common law. However, New Zealand trust law is in need of a revamp and a new trustee act is currently progressing through parliament, anticipated to be introduced over the next year. This new law is expected to bring welcome clarity for trustees, resulting in one of the most up-to-date trust laws globally, which is fundamental to the best administration of New Zealand trusts.

Trusts are widely used in New Zealand, with New Zealand having one of the highest rates of trusts per capita in the world. Globally, trust law has developed significantly over the past ten or so years and many trust centres have taken the opportunity to update their trust laws in-line with modern industry standards. New Zealand has been somewhat slower in updating its trust law, however, the result is that the country has had the opportunity to review other countries’ updated laws to fine tune the much needed update to our trust law.

Importantly, the new law will not codify New Zealand trust law, ensuring the law can continue to adapt and develop to changes in society. Instead, the new law aims to capture and clarify the existing position to provide clear, simple and accessible trust law.

One of the key features of the new law is to set out clearly the duties and powers of a trustee. New Zealand family trusts do not always have a professional acting as a trustee. Given that so much development of trust law has been through common law, there is a concern that non-professional trustees may not fully understand the extent of their obligations and duties. The new law addresses this by setting out mandatory trustee duties that can never be excluded as well as default duties that can be modified by the Trust Deed. Extensive trustee powers are also contained in the bill to ensure trustees have the upmost flexibility when managing and investing trust property. While these provisions are not a significant departure from the existing common law position, by consolidating these, the new law makes it clear to trustees what is expected of them.

Currently, the rule against perpetuities restricts trusts to a maximum existence of 80 years. Many trusts that were established when the law was introduced are nearing this expiration date and it is becoming apparent that it is not always appropriate to end trusts so early in modern society. The new law abolishes this rule and instead allows trusts to exist for 125 years, allowing families greater time to benefit from the trust structures.

The standard of a trustee’s liability and what indemnity a trustee is entitled to have developed significantly since the existing law was introduced. The new law updates the position and confirms that a trustee will be liable for and cannot be indemnified for any breaches of trust arising from its dishonesty, wilful misconduct or gross negligence.

Importantly, a welcome change in the new law is the ability to deal with trust property when a trustee becomes legally incapacitated. Currently, if a trust holds property, applications to court are needed to vest that property in the continuing trustees following the removal of an incapacitated trustee. The new law resolves this situation by allowing the continuing or replacement trustees to vest trust property on behalf of an incapacitated trustee without the need for a costly court application. The new law also intends to clarify the duties on trustees to provide information to beneficiaries, confirming a presumption in favour of disclosure of trust information to beneficiaries but also a list of several factors that trustees can consider as a rebuttal to this presumption.

Finally, an important provision that the bill retains and develops from current law is the concept of ‘Special Trust Advisers’ (‘Adviser’) (a role called Advisory Trustees under the existing law). This is a unique role under New Zealand trust law that offers a real benefit to settlors. Under the new law, an Adviser may advise the trustees on any matter related to the Trust but, importantly, does not have any powers or duties, making it clear they do not act in a fiduciary position. Unlike the role of protector used elsewhere, trustees are not required to consult with the Adviser nor are they required to follow their advice. However, if the trustee chooses to act on the advice of the Adviser, the trustee will be protected from liability for any act or omission made as a result of this advice, provided they have not acted dishonestly, with wilful misconduct or grossly negligently. Unlike a protector, the duties and powers of an Adviser are clearer and the role creates an opportunity for those settlors who wish to divest control of their assets through a trust structure while retaining a level of involvement in the administration of the trust - something particularly welcome for those settlors with tax planning or asset protection concerns.

Following the introduction of the new trust law, New Zealand will have a clear, modern trust law accessible to settlors, beneficiaries and trustees, helping to ensure best practice in the administration of New Zealand trusts.


 

Bethan Boscher

Bethan Boscher

Morrison Kent, Auckland, New Zealand
T: +64 9 303 21 64
E: This email address is being protected from spambots. You need JavaScript enabled to view it.; W: www.morrisonkent.co.nz

Bethan is admitted as a Solicitor of the courts of England and Wales and is currently undergoing re-qualification to be admitted in New Zealand. She previously worked in private practice in Guernsey where she specialised in asset planning law with a particular focus on establishing and advising on trusts, wills and estates and general asset planning.

Morrison Kent have been providing a range of specialist legal services to corporate, commercial, public and personal clients for over 80 years, forging a long tradition of integrity and client-centred service.


Published: March 2018 l Photo: Dmitri - Fotolia.com

GGI Logo 70x50px

GGI Geneva Group
International AG

Schaffhauserstrasse 550
P.O. Box 286
8052 Zurich
Switzerland

Contact

T: +41 44 2561818
F: +41 44 2561811
This email address is being protected from spambots. You need JavaScript enabled to view it.
www.ggi.com