Trusts Act 2019
The impact of the Trusts Act 2019 on trusts
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Background on the Trusts Act 2019
Impact of the Trusts Act 2019 on Trusts
The need to update trust deeds
Replacing outdated Trustee Act 1956 and Perpetuities Act 1964
I understand that you may have questions about the impact of the Trusts Act 2019 on trusts. That's why I want to share with you the benefits of this Act.
The old Trustee Act 1956 was replaced by the Trusts Act 2019 from 30 January 2021.
Law Commission review and Recommendations
The Law Commission reviewed the Trustee Act and the law of trusts in 7 comprehensive papers from 2010 until their last paper in August 2013. They recommended a modern Trusts Act to replace the outdated Trustee Act 1956.
Aim of Trusts Act 2019
The Trusts Act 2019 replaced the Trustee Act 1956 and the Perpetuities Act 1964, both of which were badly out of date and past their use-by dates, from 30 January 2021. The Act aims to make trust law more accessible, clarify and simplify core trust principles and essential obligations for trustees, and preserve the flexibility of the common law to allow trust law to continue to evolve through the courts.
Our handout and webinar on the Trusts Act 2019
Download the handout for our webinar The positive Impact of the Trusts Act 2019 or watch a recording of the webinar (you will need to enter Passcode: ?Kj!Im4#).
Benefits for trustees and beneficiaries
The Trusts Act 2019 now provides better guidance for trustees and beneficiaries and makes it easier to resolve disputes.
Changes made by Trusts Act 2019
The changes made by the Trusts Act 2019 have clarified core trust concepts, made trust legislation more useful, fixed practical problems and reduced costs. It has also modernised outdated language and concepts. Much of the Act updates or restates law that exists already, either in statute or in case law.
Some of the changes include a description of the key features of a trust to help people understand their rights and obligations; mandatory duties of trustees and default trustee duties based on established legal principles to help trustees understand their obligations; requirements for managing trust information; flexible trustee powers, allowing trustees to manage and invest trust property in the most appropriate way; provisions to support cost-effective establishment and administration of trusts; options for removing and appointing trustees without having to go to court to do so; the abolition of the rule against perpetuities, the setting of a maximum duration of trust at 125 years; and a requirement for any person paid to give advice in relation to the creation of a trust to, prior to the creation of the trust, give specific advice to the settlor about various aspects of the trust deed.
Beneficiary disclosure
Under the previous law, there was no legal obligation to notify beneficiaries that they are beneficiaries. However, the Trusts Act 2019 creates a presumption that basic trust information must be made available to beneficiaries. The Act also establishes a presumption that if a beneficiary requests further trust information, including a copy of the trust deed, the trustee must provide it within a reasonable period of time.
Independent trustees
Under basic trust law, all trustees must participate in every trust decision unless there is a power of delegation. Independent trustees have often allowed settlor trustees to operate the trust's bank account without their knowledge and have only participated in significant trust decisions, such as buying and selling properties or signing financial statements. The Trusts Act 2019 prevents trustee exemption and indemnity clauses from excluding independent trustees' liability for gross negligence.
Need to update trust deeds
The Trusts Act 2019 will come into operation on January 30, 2021. It is crucial that all trust deeds prepared by our firm before August 1, 2019, as well as trust deeds prepared by non-experts after that date, be varied and replaced with an updated trust deed. Our firm has carried out the necessary legal work and studied the Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013) to ensure that you do not need to read the full details of the Commission's recommendations and why they were made. Our trust deeds were completely rewritten in August 2019 to incorporate trust law developments and the changes required by the Trusts Act 2019.
Trusts are a critical asset protection tool, and it is essential for trustees to understand their obligations. To ensure that trustees can administer trusts in compliance with the provisions of the Trusts Act 2019, our trust deeds have been updated to include the major new provisions of the Act.
In addition to making the changes required by the Trusts Act 2019, you have the opportunity to update your trust-based estate and asset protection plan documents if they no longer reflect your current wishes.
Continuing asset protection benefits of trusts
Trusts have always been an insurance policy that protects assets against risks during a lifetime and ensures that loved ones inherit important assets safely in a manner in which others cannot take those assets from them. Clients who set up trusts many years ago have obtained significant asset protection benefits.
A client who sold her home to a trust in 1986 for $180,000, which is now worth $1.18 million was told incorrectly by friends that the Trust gave her no geriatric care means testing protection. The $1 million increase in value is completely safe in the Trust. If the Trust had been wound up only $236,336 would have been protected from geriatric care means-testing.
A couple sold their Trust's home (which had been fully gifted), and on their lawyer's advice distributed the $800,000 proceeds of sale to themselves to purchase a retirement village apartment. That incorrect advice has placed $563,664 at risk for geriatric care means testing purposes.
Disclaimer: This article should not be relied upon for legal advice. Always seek professional legal advice before making any decisions regarding your business.