New Trust Law!
There is a new trust law for New Zealand which was enacted late July 2019. This is the Trusts Act 2019 which takes effect from January 2021. This leaves a short 18 month window before the changes apply.
New rules for managing information.
The legislation is designed to make trust law more accessible and easier to understand. This is to ensure beneficiaries can enforce the trusts in which they have an interest. Trustees will have obligations to:
- Hold core documents
- Provide certain information to beneficiaries
- Respond to beneficiary requests for information
The legislation makes trustee duties and responsibilities very transparent. If beneficiaries are better informed, trustees will be more accountable. Trustees will need to be on top of their game - particularly professional trustees who are held to a higher standard of care.
New skill sets required
Managing expectations will be an important part of the trustee's role going forward. For example, managing expectations between:
- Trustees and beneficiaries
- Trustees and trust creators (settlors)
- Trustees and their advisers
The Trust will no longer be a secret. To discharge my duties as a professional trustee I have given some consideration to preparing an advisory letter (refer below to a draft template) to beneficiaries to front foot questions and queries that will cover a number of the new requirements but also that the Trusts purpose is to first look after the primary beneficiaries which is almost always the settlors.
As a senior member of the New Zealand Trustees Association (NZTA member 1006) I shall continue to take a lead to help you as a co-trustee to discharge your duties as Trustee in the appropriate manner. We shall discuss this further at our next annual trustee meeting.
Template letter Example:
XX September 2019
Address Line 1
Address Line 2
I write to you in my capacity as a trustee of the XXXX Trust which I will call "The Trust."
Your parents formed the trust in 19XX and arranged that they, their children and grandchildren would all be beneficiaries of it. The Trust is what is known as a "Discretionary Trust". This means none of the beneficiaries have any right to any money or property from the Trust. Each of the beneficiaries has only a right to be considered by the trustees for a distribution.
Discretionary trusts are common in New Zealand. They are generally established by parents for themselves and their family. The parents will typically want to try to ensure they have enough funds to support themselves from the Trust for the rest of their lives.
Trusts are set up for a number of reasons including asset protection, creditor protection, avoidance of death duty, rest home subsidiaries and/or relationship property purposes.
Many parents have not wanted to inform the children of the fact that the Trust has been created and that the children are discretionary beneficiaries of it, from a fear their children, on learning these things, might become demotivated in the expectation that they will receive substantial sums of money from the Trust. This is not intended to be the case with the XXXX Trust. Your parents made it clear when the Trust was created that it was not to become a means for demotivating children. If the trustees believe making a distribution to a beneficiary may weaken a child's resolve to work hard and succeed on his/her her own merits, the trustees are unlikely to make distributions to that person.
If the trust has sufficient liquid assets to be able to make distributions, the trustees may be willing to consider making loans to children or assisting them with the payment of educational fees in the hope that such forms of financial assistance will assist the child to further his or her career based upon his/her own self-motivation.
Beneficiaries of the Trust are entitled to be given a copy of the Deed of Trust (most New Zealand Trusts are formed with such a document) together with the Trust's annual financial statements. If you would like to see the Deed of Trust and the Trust's most recent financial statements can you, please let me know and I will provide you with copies of them.
You should feel free to contact me or any other trustee if you want more information about the Trust but in doing so you should be aware that in general, trustees do not have to disclose any details of the discussions and deliberations concerning any distributions they make or decide not to make.
If in the years ahead you would like to bring to the trustees attention any reasons why you consider they should make a distribution to you, you should feel free to do so, you should be aware the trustees are likely to be guided in their response by some fundamental principles, namely:
- They do not intend to make distributions they consider may result in a beneficiary being demotivated in their studies and/or ambitions;
- They may be sympathetic to requests for financial assistance where the provision of such assistance will assist the beneficiary to advance more quickly down a career path; and
- They will want to ensure the Trust has a constructive and not a destructive, effect on family relationships and on a beneficiary's degree of motivation to succeed in life.
They will not want to make distributions if they may be intercepted by a spouse/partner or by a creditor.
The Trusts primary beneficiaries shall remain the Trustees primary concern at this point in time.