The key points you need to know about the Act are:
- The Act will apply, from 30 January 2021, to all family trusts, estates and charitable trusts, including those created before the Act takes effect.
- All trustees must (regardless of what the trust documents provide):
- act in accordance with the terms of the documents creating their trust;
- act honestly and in good faith;
- act for the benefit of beneficiaries or the trust’s purpose; and
- exercise their powers for a proper purpose.
- All trustees must also, unless otherwise provided in their trust documents:
- exercise reasonable skill and care;
- invest prudently;
- not exercise power for own benefit;
- consider actively and regularly whether the trustee should be exercising one or more of the trustee’s powers;
- not bind trustees to a future exercise of discretion;
- avoid conflicts of interest;
- act impartially;
- not profit from their position;
- not act for reward; and
- act unanimously.
- If a beneficiary makes a claim against trustees for breach of the trustees’ duty to invest prudently, the court may take into account whether investments were diversified and whether the investment was made in accordance with any “investment strategy”. It will therefore be more important for trustees to diversify when appropriate and to have an investment strategy in place.
- All trusts established after the Act takes effect will have a default lifespan of 125 years (the maximum period that can currently be specified is 80 years). Existing trusts may be able to extend their lifespan to 125 years by way of variation.
- Trustees will have a duty to hold copies of the trust deed, variations, trustee minutes, accounts and other important trust documents. These documents need to be held by at least one trustee but all trustees must hold at least a copy of the trust deed and any variations.
- Trustees will have a duty to actively consider what information they will give to beneficiaries on the basis that:
- all beneficiaries should be told that they are beneficiaries, be given trustee contact details (updated as trustees change) and be advised that they have rights to request information; and
- trustees should provide trust information to beneficiaries on request.
- Trustees can decide not to provide information to beneficiaries, but they must have good reasons for that. The Act includes a list of 13 things for trustees to consider before deciding whether to withhold information, such as the nature of beneficiary interests, beneficiary ages, any confidentiality obligations and the effect of release on family relations.
- A trustee who wants to retire will need to seek a discharge in writing from the person with the power to remove trustees (unless the trust deed provides otherwise). Consequently, unless authorised by the trust deed a trustee will not be discharged from liability simply by notifying the other trustees of their retirement.
- The Act includes a specific power for Courts to review trustee decisions, on the application of a beneficiary who claims that the trustee’s decision was “not reasonably open to the trustee in the circumstances”. If the beneficiary can establish a “genuine and substantial dispute”, the onus is on the trustee to establish that the trustee’s act was reasonably open to the trustee in the circumstances.
The overall effect of the Act is to increase the compliance requirements for trustees. If you are a trustee, you should prepare for the Act taking effect by:
- reviewing the terms of your trust to ensure your trust deed will comply with the requirements of the Act (particularly in relation to default and mandatory trustee duties);
- ensuring that you and your co-trustees keep appropriate trust records;
- actively considering what information should be supplied to beneficiaries;
- ensuring that you have an investment strategy;
- having regular trustee meetings to consider trustee investments and the provision of information; and
- considering whether the trust is still an appropriate and cost-effective ownership structure given the new compliance requirements.
We offer a trust review service to help trustees review their trust in light of the new Trusts Act. Please contact one of our trust management experts if you would like us to review your trust with you. We can help you develop a plan for ensuring that your trust continues to meet your needs.
This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.