Trust law reform: the lowdown

With the new Trusts Act 2019 coming into law, Good Returns speaks to industry experts about what advisers need to know.

Wednesday, February 3rd 2021, 6:00AM

Henry Stokes

The new Trusts Act 2019 took effect on January 30, 2021. The act updates and improves the law governing trusts for the first time in more than 60 years. It will apply to all existing trusts in New Zealand, as well as any trust created on or after its inception.

With trusts being a key part of financial planning, it is crucial that all advisers understand the impact of the new act.

The Ministry of Justice has said that “clarifying the trustee role could mean in practice trustees need to widen their current level of responsibility”.

That sentiment is echoed by Henry Stokes, general counsel at Perpetual Guardian, who says, “The biggest thing for anyone who has, or is looking to establish, a family trust [to be aware of] is the rise in information that beneficiaries are entitled to.

“One of the biggest changes under the act is the mandatory disclosures to beneficiaries. The mandatory part is that the trust exists, that they are a beneficiary of the trust, and the beneficiaries right to request access to further information.”Financial advisers acting as professional trustees will have to provide evidence that they have disclosed the mandatory information to all beneficiaries to the extent of the new act.”

Stokes says, “The whole purpose of the legislation is that beneficiaries have access to the appropriate information, to make sure that trustees are actually doing their job properly.”

For Stokes, the important element for advisers to be aware of is the way the act may impact their client’s family dynamic. “I think it’s just a case of discussing what is right for the client and their family.

“If you have a family where there is no issues with transparency around financial matters then the trust will not cause any issues. For other families it may be they have a concern for particular members, so they don’t want to share information. Therefore a trust under the new act may not be the best vehicle for every situation.

“It is all about ensuring that a trust doesn't just purely fit your financial needs, but does it work for your family dynamic? These are discussions that financial advisers will need to address with their clients.”

Alistair Robertson, financial council at MinterEllisonRuddWatts, says that while the act is largely a reinstatement of long standing common law, it “may increase the administrative burden for people managing trusts”.

While the administrative burden is key, Robertson says “Financial advisers involved in trusts also need to be aware of a new duty on paid advisers who advise on the establishment of trusts to inform beneficiaries of certain things.

“The other key thing for advisers is that the Trust Act has put in clear statutory language limitations around trustee exemption and indemnity clauses. If you are involved in a trust as a trustee, you will want to consider whether the act has impacted your indemnity position.”

While there is a lot going on with the new act, Robertson advises “The key message is that if you are involved in the administration of trusts as a trustee you need to evaluate your trust document as a whole to see if you need to make any amendments.”

Tags: Minter Ellison Rudd Watts Perpetual Guardian trusts

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