The Act makes a number of key changes:-
The most important change closes a loophole that previously allowed Trustees to name someone as a beneficiary without notifying them, meaning many beneficiaries could be unaware they were not receiving trust distributions they were entitled to.
It now states there is a presumption on trustees to notify someone that they are a beneficiary of a Trust and grants the right to the beneficiary to request further information about the Trust. This would include the name and contact details for the Trustee, the details of each appointment, removal and retirement of a Trustee, and each beneficiary’s right to request terms of the trust, trust information and to be supplied with Financial Statements.
However, there are also certain factors that a Trustee needs to consider before deciding whether that presumption to disclose applies.
Previously decisions about income distribution were often made for tax purposes and not expected to be revealed to beneficiaries. Now, as beneficiaries become aware of an increased level of accountability from Trustees and the potential for actual income distributions to be paid out, it is predicted that Trust disputes could increasingly end up in court.
Retaining Core Documents
Trustees (or at least one) must keep copies of the core documents of the Trust, including the Trust Deed and variations, details of Trust assets and liabilities and financial statements, contracts entered into by the Trust, records of Trustee decisions and Settlor letter or Memorandum of Wishes.
These core documents must be kept for the lifetime of the Trust which means Financial Statements need to be held longer than the law otherwise requires them to be. This obligation on Trustees is likely to result in changes in how professionals both hold and manage Trust documentation on behalf of their Trust clients.
While the law has always imposed duties on Trustees, the Act now defines both mandatory and default duties of Trustees. The mandatory duties set out the basic obligations of Trustees to know the terms of the Trust and follow them, act honestly and for the benefit of the beneficiaries appropriately. The default duties can be modified or excluded by the terms of the Trust Deed. They cover such matters as Trustees’ investment obligations, conflicts of interest and a requirement to act unanimously. It means Trustees should consider the terms of their Trust in light of these new duties and determine whether any variations should be made to the Deed as a result.
We have found that in some circumstances having two individual Trustees can be a risk such as if one became incapable of acting. The use of a corporate Trustee can be worth considering. This can be your own company specially set up for the purpose. Doing so can sometimes reduce financial risk for Trustees.
It allows the maximum duration for a Trust to be extended from (effectively) 80 years to 125 years.
The current terms of some Trusts do not permit this change of duration, so this needs to be closely looked at with the option for a Deed of Variation to be set in place if appropriate.
There are changes to the rules that apply to Trustees’ ability to exclude or limit their liability and Trustees’ rights to be indemnified from Trust property. These changes are likely to change how professional Trustees manage Trusteeships.
From our perspective, whether acting as your co-Trustee either personally or via a corporate Trustee and/or undertaking Trust accounting and/or advisory services, our obligations to get on top of the new requirements are multi-fold and will involve more time and cost.
There are changes to Trustees’ abilities to delegate powers and functions, which increase the circumstances in which the powers can be delegated but restrict the timeframe during which the delegation is effective.
If any beneficiary has a credit balance of more than $25,000 at 31st March 2020, this could cause a tax problem for the Trust while payment of balances could be demanded once beneficiaries become aware of money owing to them.
Who is, and who should be a beneficiary needs to be reviewed to ensure those currently eligible are what is intended.
Not surprisingly, it is expected that Trusts may wind up or that Trustees will choose to resign.
Planning is needed now ahead of the new Act coming into effect on 30th January 2021.