As the economic effects of the Covid-19 pandemic begin to creep through our country of small businesses, the benefits of having a well-documented and properly managed trust, designed to help preserve and protect all that you have worked for, are being brought into stark focus.
Over the last month the team at Langley Twigg have had some time to focus on the new Trusts Act which will impose new obligations on trustees, settlors and beneficiaries and affect how trusts operate.
We are fortunate to belong to the Lawlink network of NZ law firms, which has put significant resources into a collaborative production of an excellent template for trusts created under the new regime.
Indeed the new Lawlink Trust Deed’s primary author, Mary Joy Simpson, was a keynote speaker at the recent Auckland District Law Society “Cradle to the Grave” Conference, on the topic of “Drafting Trust Deeds”.
Since the new Act takes effect on 30th January 2021, it is important to now review existing trusts in the new legislative context to ensure that the trust operates as was intended, ensuring it remains robust, fit for purpose, compliant with the new Act, and if appropriate extending its lifespan, which may now be up to 125, rather than 80, years.
To a large extent, the Trusts Act codifies our existing trust law, whether in statute or case law. However there are changes of which all parties to a trust should be made aware, and this would form part of any review
In conducting a trust review, we would cover the following key areas:
Reasons for the trust
Why was the trust created in the first place? Common reason are: creditor protection, estate planning, relationship property, residential care subsidy, providing for beneficiaries with special needs. Many trusts will need some form of changes in light of the new Act; however for most, their existing structure will be fit for purpose, or can be made so with some variation.
In some cases though, a resettlement of the trust on another new trust which is more appropriate for the holding of assets inter-generationally may be appropriate. Alternatively, you may decide that the trust has served its purpose and can be wound up.
In many cases, variations, resettlements and winding-ups should be carried out before the Act comes into effect.
Are current trustees willing, and able, to take on the additional responsibilities imposed on them by the Act? If not, steps should be taken to effect the retirement or removal of unsuitable trustees and, where appropriate, the appointment of new ones.
The Act imposes a heavier burden on trustees to, for example, hold and retain trust documentation, (within limits) provide information to beneficiaries, and record trustee decisions.
It imposes five mandatory duties on trustees. These cannot be modified or excluded in the Trust Deed, and if the wording of a Trust Deed (including an existing Trust Deed) purports to do so, that modification or exclusion will be invalid.
The mandatory duties are:
The Act also imposes ten default duties that must be performed by trustees unless modified or excluded in the Trust Deed.
The default duties are:
Your existing Trust Deed may already modify many of these default duties. It will be a worthwhile exercise to review existing Trust Deeds to see whether further modification is warranted to control the application of the default duties, or to ensure that they are more explicit in meaning.
Our view is that variations will need to be authorised by the Trustees and can in many cases only occur if the power to vary the Trust Deed is actually stated (our post-1992 Trust Deed template has this flexibility).
A review of your Trust need not be a lengthy or expensive exercise, but will ensure that your Trust is fit for purpose and compliant. Like any check-up, it can help prevent problems and much higher costs down the track.
Be sure to get in touch with our Trust lawyers if you have any further questions.
Langley Twigg's team of Hawke's Bay lawyers keeps you up to date on all the latest legal news.
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