Proposed Changes To Trust Law

The Law Commission feels a new framework is needed to provide a clear and robust approach for trusts in the 21^st Century. They are undertaking a 3 part review of trust law in New Zealand and presented the first report to Parliament on 11 September 2013.

The Law Commission report focuses on the essential nature of trusts and recommends the introduction of a new Trusts Act (‘proposed New Act’) to replace the Trustee Act 1956 (‘current Act’), which the Commission believes has become outdated. A selection of the recommendations in the report are summarised below:

Recommended Core Trust Concepts

• That there be a statutory definition of a “trust”, setting out the specific requirements necessary for a trust. It is hoped a clearer definition in the proposed New Act will assist the Courts in addressing possible “sham” trusts.
• That the duties of trustees be clearly set out in the proposed New Act. While not creating new duties per se, the purpose is to make the law clear and accessible. The proposed New Act would introduce 6 mandatory duties and 11 default duties, which will apply, unless the trust deed indicates otherwise.
• That trustees be barred from limiting their liability or receiving an indemnity for gross negligence, which aligns with the current position in cases of dishonesty or willful misconduct.

Recommendations Regarding Trustees Powers, Duties & Roles

• That provisions be enacted that broadly empower trustees. The Commission believes that the current Act unduly restricts trustees’ powers, and that the proposed statutory duties to be imposed on trustees will be sufficient to control any inappropriate use of trustees’ powers.
• That trustees be able to invest funds, with discretion to determine whether the return is “income” or “capital”. The focus is on the overall return, meaning investment managers can also be appointed.
• That the rules relating to changing trustees be amended, as the current legal framework is difficult and often necessitates the Court’s involvement.

Recommendations Regarding Court Powers & Jurisdiction

• That the Court be given wider powers in its role of overseeing trusts and reviewing trustees’ decisions.
• That the District Courts have the same jurisdiction as the High Court to deal with trusts, provided the amount involved is within the Court’s monetary limits. The report also recommends the Family Court have jurisdiction in certain cases.
• That Alternative Dispute Resolution procedures be available for the resolution of trust related disputes, as well as an increased role for the Public Trust to alleviate dependence on the Courts.

General Trust Recommendations

• That the rule against perpetuities for new trusts be extended from 80 to 150 years.
• That the Property (Relationships) Act 1976 be amended to enable the Family Court to make orders compensating a partner by way of trust assets, where their claim would otherwise have been defeated.

While many of the recommendations simply clarify the existing law, the Commission recognises the new regime will widely impact the estimated 300,000 – 500,000 trusts currently in New Zealand.

Whether the Government approves the report remains to be seen. In the meantime, the Commission will continue with the final 2 stages of their review, which relate to charitable trusts and corporate trustees. For a full list of the proposed changes, refer to the Commission’s website:www.lawcom.govt.nz/our-publications.