Trusts are common in NZ and the reasons for setting them up vary. The Trusts Act 2019 comes into effect on 30 January 2021. Changes to the act aim to make trusts more accessible. There are increased compliance obligations on trustees and duties that ensure greater transparency for beneficiaries.
The changes to the act include:
- The age of majority (the default age that a person can inherit if not specified) changes from 20 to 18.
- The maximum duration period of a trust is extended from 80 years to 125 years
- Obligations on trustees to keep certain information about trusts
- A mechanism to request the court to review the decisions and actions of trustees
- Flexible powers for trustees to manage trusts.
Trustees must be aware of their obligations and duties under the law. These are set out in the Trusts Act 2019. There are mandatory duties that are essentially to ensure trustees take their role seriously. These are:
- A trustee must know the terms of the trust
- A trustee must follow the terms of the trust
- A trustee must act honestly, and in good faith
- A trustee must act for the beneficiaries of the trust
- A trustee must exercise the powers they have for a proper purpose.
Optional duties for trustees – The act sets out optional duties that can be changed in the trust deed. If this happens, the advisor must point this out to the settlors.
Duties regarding information keeping and sharing – These duties are regarding the information trustees must keep, and the information that must be made available to beneficiaries (including of trust assets, trustee decisions, and changes to the trust).
From January the trustees are required by law to share information about the trust with beneficiaries. You should make sure the group of beneficiaries comprise only those who it is intended will actually benefit from the trust.
The additional compliance duties for trustees within the act may mean that existing trusts are no longer cost effective. Greater transparency may also require trustees to disclose information that they previously did not share.
It may be time to review the reason you set up your trust. To make an informed decision about what is right for you and your trust, you should consider having a discussion with your lawyer or us.
From January next year, the work, and therefore the cost of maintaining a trust will increase and if you only have the family home in the trust, the cost could outweigh the benefits of having a trust.
Get in touch with us to discuss how the changes may impact you.