Tax Watch: February 2017
Trusts reform aims to make law more accessible
Justice Minister Amy Adams has released draft legislation to update New Zealand’s outdated trust laws.
The draft Trusts Bill (“the Bill”) was released for consultation in November 2016, three years after the final Law Commission report which recommended its creation. It adopts almost all of the Law Commission’s recommendations.
Bill updates 60 year old Act, codifies case law
The purpose of the Bill is to make trust law more accessible to New Zealanders. It updates the Trustee Act 1956 which is outdated, doesn’t adequately reflect trust practice, is narrow in scope and is difficult to understand. The Bill also codifies case law. The idea is that laws which could only previously be ascertained by trawling through case law and trust textbooks will be contained within legislation. Time will tell whether it delivers on this.
Although the Bill has been criticised as being overly prescriptive and undermining the flexibility of the law to evolve as appropriate, we think the approach taken is very beneficial overall. The Bill serves an educative purpose for the public whose appetite for trusts is high but whose knowledge of the law that underpins them can be patchy.
When the Bill becomes law, people wanting to learn more about trusts or trustees responsible for administering trusts will have the benefit of a more user-friendly piece of legislation which sets out all the core legal principles of express trusts.
Trust terms may need revisiting
The main parts covered by the Bill are:
- The characteristics of express trusts covered by the Trusts Bill
- The trustee duties and information obligations
- Information on trustee powers and restrictions on indemnities
- How to appoint and discharge trustees
- How to revoke and vary trusts
- The powers of the court and dispute resolution
The intention of the Bill is that existing trust deeds will not need to be changed. However, there are some aspects of the Bill which could cause settlors to revisit the terms of their trust. These aspects of the Bill are ones that effectively change the law in subtle but significant ways.
These changes include:
- A presumption that trustees provide trust information to beneficiaries that can only be overridden if there is good cause
- A list of mandatory trustee duties that cannot be excluded or modified by the terms of the trust
- The maximum duration of trusts has increased to 125 years. This won’t apply to trusts created before the Trusts Bill comes into force unless the terms of such trusts contain a mechanism for amending the trusts’ duration.
In light of these changes and recent court decisions, it is a good time to revisit trust arrangements.
Enacted Bill likely to retain current proposals
There is still a process remaining before the Bill becomes law. Submissions have been provided as to whether the wording and structure of the Bill is sufficiently clear or if there are any unintended consequences. The Government has indicated that the Bill will go before Parliament later this year and there will still be another opportunity to comment when it goes before select committee. However, it is widely anticipated that the Bill once enacted will retain the current proposed changes.
If you have any questions on any aspect of trust law or the proposed changes, please get in touch with our experienced team at EY Law or with your usual EY contact.