The New Trusts Act:
A new Trusts Act 2019 comes into force on 30 January 2021. This has implications for anyone that is currently involved in a Trust, whether as a settlor, trustee or beneficiary.
A properly administered family trust is an important part of succession planning and can provide an excellent option for managing assets under appropriate circumstances.However, the new Act has implications for existing Trusts:
- There could be a possible increase in compliance costs of maintaining your Trust;
- Some Trusts may no longer be cost effective to maintain;
- The requirement for greater transparency may bring out an examination by key beneficiaries of matters that the Trustees may have preferred to keep private.
If you are involved with a Trust it is a good time to consider whether:
- you wish to undertake increased obligations imposed by the new Act;
- you are comfortable with providing a higher level of information to beneficiaries;
- the original reasons for setting up the Trust are still valid;
- your Trust still provides the asset protection you require;
- in general, your Trust remains cost effective.
Further information about the Act follows below.
Trust Act 2019: An Overview
The Trusts Act 2019 (“Act”) will replace the existing Trustee Act 1956.
The Act is not intended to be an exhaustive code – so it won't replace case law. However it will modify case law in some areas. And in some areas it will override what the trust instrument says.
In broad terms the Act will apply to all trusts whether created before or after the commencement date of the new law.
Whether you are a settlor, trustee or beneficiary of a trust, the new laws will likely affect you.
So what are the key changes?
- Trust information
The most contentious area of the entire Act is disclosure of trust information.
This is a very important area because if beneficiaries are unable to find out information about a trust, and therefore what their rights might be, they cannot hold a trustee accountable. On the other hand, some settlors and trustees are very concerned to ensure privacy – even at the expense of beneficiaries' rights.
The new Act deals with this in two ways:
Record keeping obligations
Under the Act trustees have to take reasonable steps to keep trust documents for the duration of their trusteeship.
- This includes any document relating to the terms of the Trust and the Trustees such as the trust deed and variations of trust; and also all documents showing appointments and removal of trustees.
- It also includes (amongst other things) records of the Trust’s assets, liabilities, income and expenses, any written contracts, and the Trust’s accounting records and financial statements if these have been prepared.
If there is more than one trustee then every trustee must have a copy of the terms of the Trust and at least one of the Trustees must have a copy of all of the required records. At the time the trustee retires or is removed, they must give the documents they hold to at least one replacement, or continuing trustee.
Giving information to beneficiaries
The Act also spells out how the trustees should deal with giving information to beneficiaries – which is important because beneficiaries need information so they can hold trustees to account. The Act:
- Sets out two types of person who disclosure may be made to (a) beneficiaries and (b) representatives of beneficiaries who lack capacity (such as children).
- Sets out what is trust information - and importantly excludes from it the reasons for trustees' decisions.
The Act creates a presumption that a trustee will make available some basic trust information to every beneficiary or representative of a beneficiary unless the trustee reasonably considers otherwise. The basic trust information is:
- The fact the beneficiary is a beneficiary of the trust;
- The trustees’ names and contact details;
- Details of each appointment, removal, and retirement of a trustee as it occurs; and
- The fact the beneficiary can ask for a copy of the trust terms or other trust information.
The information requirements can't be contracted out of. However, it is not anticipated that all information must be provided to every beneficiary – only the important ones who have real prospects of participating in the trust.
The Act sets out a wide variety of factors trustees must consider before providing any confirmation about the trust to any beneficiary. These factors include:
- The nature of the particular beneficiary’s interest in the trust and the likelihood they will receive trust property in the future;
- Whether the information is confidential;
- The settlor’s intentions;
- The age and circumstances of the beneficiary, other beneficiaries of the trust and the effect of giving the information;
- The effect on relationships between family members, and between the trustees and beneficiaries; and
- If a beneficiary has requested information, the nature and context of the request.
In reality, these factors give trustees considerable wriggle room to limit or refuse disclosure of information. However, the purpose of the Act is that trustees must be held accountable for administration of the trust – so the trustees can’t withhold information from every beneficiary.
- Exemption and indemnity clauses
The Act contains sections regulating the exoneration of trustees from liability.
The terms of a trust must not limit or exclude a trustee’s liability for any breach of trust arising from the trustee’s dishonesty, wilful misconduct, or gross negligence.The restrictions on "contracting out” of wilful misconduct and gross negligence are new.
If a trust deed includes a clause that purports to exclude liability for dishonesty, wilful misconduct, or gross negligence then that clause will be invalid.
- Trustee duties
The Act refers to two types of trustee duties - mandatory duties and default duties.The mandatory duties override what the terms of the trust say.The default duties apply unless the terms of the trust change them – either expressly or by implication.
The mandatory duties are:
- Duty to know the terms of the trust;
- Duty to act in accordance with terms of trust;
- Duty to act honestly and in good faith;
- Duty to act for benefit of beneficiaries or to further permitted purpose of trust; and
- Duty to exercise powers for proper purpose.
The default duties are:
- General duty of care;
- Duty to invest prudently;
- Duty not to exercise power for own benefit;
- Duty to consider exercise of power;
- Duty not to bind or commit trustees to future exercise of discretion;
- Duty to avoid conflict of interest;
- Duty of impartiality;
- Duty not to profit;
- Duty to act for no reward; and
- Duty to act unanimously.
The default duties may be modified or excluded by the terms of the trust – and it is very common to do so. If you are setting up a new trust, the person advising you (whether that’s an accountant, lawyer or someone else) is required to explain the effect of any changes made to the default duties before you sign the document.
- Trustee powers
The flip side of a trustee's duties is a trustee's powers.
A trustee will have a range of powers under a trust instrument. Currently these powers may be given by the trust deed or by law.However, the law in this area has not kept pace with the changing environment in which trusts operate.A trustee's default powers are often inadequate and will often not give a trustee the powers they need to administer a trust well – which is of course in the interests of the beneficiaries.
The new Act addresses this by providing a general power of management.The Act says a trustee has all the powers necessary to manage the trust property including, in relation to the trust property, all the powers of an absolute owner of the property.This will be very helpful as it will mean old trusts, with bad management powers, will be able to be lawfully managed properly.
The Act also sets out trustee powers of investment.
There are some changes in relation to the distinction between income and capital and the apportionment of receipts and outgoings.These are aimed at giving trustees more flexibility in allocating and apportioning income and capital and replace the case law rules in this area.
However, in broad terms, the trustee investment powers maintain the status quo and are similar to those under the outgoing Trustee Act 1956.Trustees are permitted to invest trust funds properly using prudent investment principles.
- Appointment of agents, managers, custodians, and attorneys
Under current laws, it is difficult for trustees to delegate their powers, including to appoint custodians and use nominees to hold assets. But in our modern investment environment a trustee will often need to delegate certain trustee powers and functions in order to ensure the trust is carried out well for the benefit of the beneficiaries.
To address this, the new Act gives a trustee default powers to appoint others to carry out a wide range of powers and functions for trustees – within certain limits.
The Act draws a distinction between: (1) administrative powers and (2) dispositive (i.e. distribution type) powers and certain other powers.The trustee can appoint others to carry out administrative powers - but only the trustee may exercise (2) dispositive powers.
The trustees’ general duty of care applies when appointing others to undertake administrative functions for them. The Trustees must also keep any appointments they make, and how they are put into effect, under review, and, if appropriate intervene.
- Special trust advisers
The Act provides for the appointment of special trust advisers. It allows for special trust advisers to be appointed under the terms of the trust instrument, by order of the Court, by persons having the power to remove or appoint trustees, or by attorneys.
A special trust advisor is intended to carry out a role in place of an advisory trustee (which is a role provided for under current trust laws). However a special trust advisor is not a trustee – the Act makes it clear that a trustee is not liable to beneficiaries if it follows the special trust adviser's advice on a matter (unless doing so involves the trustee's dishonesty, wilful misconduct, or gross negligence).
- Duration of the trust
The New Act extends the maximum lifespan of a trust from 80 years to 125 years, unless the trust deed specifies a shorter period.
This will have more effect on new trusts than trusts that already exist. The original vesting date of existing trusts will continue to apply unless the trust deed specifically allows for it to be extended.
- Age of majority
The other way the Act impacts the duration of trusts is by changing the age of majority from 20 years to 18 years – which can bring vesting dates or entitlements to distributions forward by two years.
The above information is of a general nature only. The information in this article does in no way constitute legal advice and all readers should contact a law firm for advice relating to your specific circumstances.
About Jeff Kenny
Jeff is a senior partner at Saunders Robinson Brown and specialises in retail property and trusts.
About Tanya Speight
Tanya is a member of our Trusts and Estates Team. She is an experienced commercial and property lawyer, specialising in business and asset protection, Trust law and estate planning.