Are you a trustee of a family trust?
If you are a trustee of a family trust, you should be aware of the new Trusts Bill introduced into New Zealand’s Parliament in August 2017. The bill seeks to restate and reform New Zealand’s trust law and is probably the biggest thing to happen to trusts in decades.
Trusts play a significant role in the life and economy of New Zealand. The bill, if enacted, will apply to ALL express trusts including those that existed before enactment.
An express trust is a trust which has been established by private individuals in which a trustee holds or deals with trust property for the benefit of the beneficiaries or for a permitted purpose. Most family trusts would be an express trust.
One of the main features of the bill concerns trust management. Much trust management in New Zealand is abysmal.
There are many trusts that have no guidance from a professional (lawyer or accountant) and, left to their own devices, trustees have managed trusts as if the trust’s assets are their own, which would weaken or defeat the purpose of the establishment of a trust and the protection of the trust owned assets.
Not only may the assets of the trust be in jeopardy but also, as a trustee, by law you are accountable for the way you carry out your trustee duties.
The bill sets out mandatory and default trustee duties to help trustees understand their obligations. These are simple and amount to taking the trust seriously, for example:
- A trustee must know and follow the terms of the trust which are set out in the Trust Deed;
- A trustee must act for the beneficiaries of the trust;
- A trustee is to act with reasonable care and skill, to invest prudently, not to do things for their own benefit, and to act impartially towards beneficiaries; and
- A trustee must keep certain information and may be required to make this available to beneficiaries (including records of trust assets, trustee decisions, and changes to the trust).
Being a trustee is an onerous task. Under the bill, record keeping and the proper exercise of the duties and powers of trustees becomes critical.
The bill will strengthen the hand of beneficiaries by allowing them rights to trust information, so the beneficiaries can play a bigger role in keeping trustees honest and accountable.
Time for Review
Now is the time for those involved in trusts, to review and consider the application of the bill to existing trusts.
For some, decisions need to be made as to whether or not to continue with a trust – you may decide that you get little benefit from the trust and that this is the time to wind it up. On the other hand, for those who do find they still have a good and compelling reason for a trust, good management and record keeping systems will be essential.
For those who currently act as a trustee, this is an opportune time to evaluate your governance role. There are many people who have signed up to assist a friend or colleague with governance responsibilities on a trust but never properly understood their obligations. There’s never been a better time to ask – are we running this trust correctly, and are we meeting our obligations under the current and proposed law?
Cost of Management of a Trust
There will be a cost to managing a trust if you want a trust to pass scrutiny and to ensure you are meeting your trustee obligations. But this is no different to paying to insure the house. Poor trust management is like going out and leaving the doors unlocked. Franklin Law offers an affordable trust administration service, so please talk to us about how we can assist you to manage your trust well.
TAKE OUR 5 POINT TEST – ARE YOU MANAGING YOUR FAMILY TRUST WELL?
If you cannot confidently answer yes to the following questions, then your Trust is not being managed well.
- Do you fully understand the content of the Trust Deed and the obligations it imposes on you, as a trustee?
- Is the trust property dealt with separately from your own property, and only in accordance with the Trust Deed and for the benefit of the trust’s beneficiaries?
- Have all trustee decisions been recorded correctly and reflect the documents executed?
- Do all the trustees meet at least annually?
- Do you keep a minute book of decisions of the trustees?Is your Memorandum of Wishes up to date and reflective of how you wish your Trust to be used in the event you are no longer able to give your voice?
Many trustees are not diligent in carrying out their duties – are you one of them? If you have concerns, please come and talk to one of our Trust Experts, we can help you.