What is happening with Trust Law
The current principal Act governing trusts is the Trustee Act 1956. It is an outdated Act, expressed in obsolete and unclear language and does not adequately cater for the regulation of trusts in their current format. Most of the advances in trust law since that Act was passed have been a result of case law.
Increasingly rules relating to trusts and the effectiveness of the transfer of assets to trusts is being determined by Courts in insolvency litigation, relationship property litigation and through developments in taxation law.
The Law Commission, comprising a committee of various experts in trust law, has recently conducted a full review of New Zealand trust law which has been submitted to the Government. It is the intention of Government to pass a completely new Trustee Act.
Issues under the new Trustee Act which are undecided as yet but which are likely:
- Trustees’ duties have to a large extent been established and embellished by case law. The recommendation of the Law Commission is to codify trustees’ duties by including them in the new Act.
- The maximum term under the Perpetuities Act is a life in being plus 21 years, or 80 years. The proposal is to increase the maximum permitted term to 150 years.
- There are currently limited disclosure requirements on trustees. Case law has established that trustees are obliged to provide to beneficiaries details of assets and liabilities and trustees decisions, as well as basic trust documents such as the trust deed and variations. The requirement is not usually complied with unless there is demand from a potential beneficiary. The current proposal may result in law which requires all discretionary beneficiaries to be subject to a compulsory disclosure regime.
- The Act, if passed on that basis, will result in settlors being extremely careful about the people or class of people who are named as beneficiaries.
- The overall supervision of trustees to ensure compliance with trust deeds and that trustees’ act bona fide in the interests of all beneficiaries will not change.
In the meantime, until the Law Commission’s report is reproduced in a bill, care should be taken in the selection of beneficiaries given that the disclosure regime in particular is likely to change.