New Trust legislation in New Zealand comes into effect from 30 January 2021. The changes and new obligations are significant.
Trusts in New Zealand are estimated to number between 300,000 and 500,000, the equivalent of one trust for every 6% to 10% of New Zealanders, so the overhaul of the Trustee Act of 1956 is not surprising.
The new Act aims to make trusts more transparent. Core changes include easier to understand lingo with clearer definitions of Trustee roles and responsibilities. However, these will also become more complex. Trustees must also ensure all core documents and records of a Trust are available and kept updated. The maximum duration of a Trust has been extended from 80 years to 125 years.
The new Act’s 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.
The Act states that there is a presumption that a trustee must make available to every beneficiary or their representative, basic trust information. That includes the fact that a person is a beneficiary, 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.
Not surprisingly, it is also expected that Trusts may wind up or that Trustees will choose to resign.
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.
It is important that between now and January 2021, you develop a good understanding of the new reform and options you may wish to consider. Tony in his role both to you and as a fellow of the New Zealand Trustees Association, is available to help.