Trust law in New Zealand has recently come under increased scrutiny with the introduction of the Trusts Act 2019. The Act, which came into force on 30th January 2021, was seen by many as an unwanted ‘spotlight’ on trusts, clearly setting out the fiduciary duty Trustees owe to beneficiaries.
In a nutshell, a Trustee holds and manages property for the benefit of the trust’s beneficiaries (who are identified in the Trust Deed). Trustees are the ‘caretakers’ of the trust assets and they cannot act to benefit themselves from that property. This can become complicated where a person is both a Trustee and a beneficiary of the trust.
To prevent Trustees abusing the powers they have, Trustees must act according to the duties and obligations set down for them. The Trusts Act 2019 makes these much clearer than they have been in the past. Trustees have to firstly understand the trust deed which gives them powers to act, sets out the purpose of the trust and identifies who can benefit from the trust’s assets (the beneficiaries). Then there are the new legislative duties and obligations, which provide rules around what Trustees can and can’t do.
The legislature intended for the Trusts Act to provide plain English clarity around what is expected. Not only should Trustees understand what is required of them but it also enables beneficiaries of a trust to hold Trustees accountable. Beneficiaries are entitled to certain information and they can ask questions which Trustees are bound to consider and respond to. Only in limited circumstances can Trustees decline to provide the requested information. As a consequence, it is likely that we will see an increase in Trust litigation.
Although it is easy to criticise these developments and feel they are an intrusion, we shouldn’t be surprised or annoyed. Trusts were originally set up to ensure that an identified and named third party (the Trustees) would responsibly manage the trust so that the beneficiaries could benefit from the trust’s assets. As such, Trustees can be held accountable for their decisions.
The Trusts Act 2019 sets out Trustee duties in a way that summarises and restates long-held principles, allowing a Trustee to clearly understand their obligations. In brief, there are five mandatory duties and ten default duties. Default duties can only be modified by the trust deed, and if this is not done, then the default duties are mandatory. If you are a Trustee, you need to review and understand these obligations.
Trustees must educate themselves. Being a Trustee is not something to be taken lightly, as the Courts are unforgiving towards ignorant fiduciaries. As beneficiaries are becoming more informed, you do not want to find yourself personally liable for decisions you made that were a breach of trust.
We recommend you take stock, up-skill and understand the nature and duties of the role you have taken on. If necessary, seek legal advice. Do not remain in the dark!