Time to review your trust.
Recent fundamental legislative developments may have a significant impact on your trust. The Trusts Act 2019 comes into force on 30 January 2021 changing the management of trusts, which is the first time in over 65 years that any changes have been made to New Zealand trusts legislation – is your trust ready?
Trusts are increasingly coming under scrutiny and trustees are being pursued personally for failing to carry out their administrative duties properly. Inland Revenue and the Courts are now looking more closely at trusts and Inland Revenue has the power to look into trusts where a "sham" or tax avoidance is suspected. Furthermore, trustees can be held responsible to beneficiaries of the trust who suffer loss where the trustees have failed to act in the best interests of the beneficiaries.
This new Act aims to provide better guidance and understanding for trustees and beneficiaries by clarifying and simplifying the core trust principles and essential obligations.
The key changes include:
- Providing core information to beneficiaries going forward;
- Mandatory duties and obligations of a trustee;
- Trustees are required to retain trust documents indefinitely;
- The lifetime of a trust has been extended;
People with trusts will need to be prepared for when this new Act takes effect. We want to ensure that your trust is properly managed to lessen the risk of liability and to ensure that the benefits of having a trust are achieved. It is therefore important to review the provisions of the trust deed for your trust to ensure that it continues to comply with those law changes and/or any changes in your personal circumstances.
In particular, the issues we look at are:
- The importance of having an independent trustee: This demonstrates that the ownership of Trust Assets has changed significantly after they were transferred into the Trust and that the Trust is not a “sham”.
- The importance of annual trustee meetings: Again, without an annual meeting it is hard to prove the Trust exists and is not a “sham”.
- Ensuring your beneficiaries are the people you want to benefit: It is best to ensure that your siblings, their spouses and your children's spouses are not beneficiaries of your Trust as the new Act gives beneficiaries of your Trust the power to request information about the way it is being managed.
- Appointing and removing beneficiaries and trustees: Checking who holds the power to carry this out today and in the future, especially for Trusts you may set up for children.
- Removing Trustees who lose capacity: Checking that there is a provision in the Trust deed for the removal of trustees that lose their capacity in order to avoid the time and cost involved in a Court application that would otherwise be needed.
- Trustees responsibility for trust investments: Checking that there is a contracting out within the trust deed from the high onus on trustees to diversify the trust's investments in order to achieve the best return on investments; and
- Completion of Gifting: Now that gift duty has been abolished, ensure that all gifting is completed so as to defeat potential claims by creditors and/or spouses/de facto partners, where appropriate.
It is also important to review your wills, memorandum of wishes, enduring powers of attorney and related documents to take into account any changes to your personal circumstances.
We highly recommend that we meet to discuss the changes and how your trust may be impacted.
For further Trust Law advice, get in touch with Tammy and the Trust Law Team.
tammy@davenportslaw.co.nz | 09 883 4420
