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Grant outlined the opportunity the New Act presented for those with existing trusts to consider the ongoing need and original purpose of the trust and whether it still provided the same benefits, particularly in the context of the increased compliance costs for operating a properly structured and managed trust - Are the asset protection needs still there? Are there family dynamics that support the retention of the trust? Is there a way the trust could assist with eligibility for residential care subsidies? Grant noted that trusts are still an important part of the estate planning and asset protection structuring tool box but fine tuning may be required to existing trusts to bring them into line with the New Act.
The New Act requires Trustees to provide ‘basic trust information’ to beneficiaries:
Presumption that trustees must make the following basic trust information available:
The fact that a person is a beneficiary of the trust; and
The name and contact details of the trustees; and
The occurrence of, and details of, each appointment, removal, and retirement of a trustee as it occurs; and
The right of the beneficiary to request a copy of the terms of the trust or trust information.
The purpose of this is for beneficiaries to have sufficient information to enable enforcement of the terms of the trust and trustee’s duties.
Grant advised that the disclosure of information obligation is potentially one of the more sensitive issues under the New Act and that in some circumstances beneficiaries may need to be removed. Noting the difference between being provided information and status as a ‘discretionary beneficiary’, there may no longer be an intention for the trustees to distribute to all beneficiaries or alternatively there could be conditions attached to distributions to certain beneficiaries.
If trustees consider that factors such as the nature of beneficiaries’ interests held, confidentiality, settlor’s intentions and expectations and the effect of any disclosure mean that information should not be disclosed that is an option. However, if trustees resolve not to disclose information, an application must be made to the Court for directions in certain circumstances.
In terms of other trustee duties, the New Act provides for “mandatory trustee duties” under which trustees must know the terms of the trust, act in accordance with the terms of the trust, act honestly and in good faith, deal with trust property for the benefit of the beneficiaries and exercise their power for a proper purpose.
There are also ‘default trustee duties’:
Default Trustee Duties (these apply unless specifically excluded by the trust documents)
Must exercise the care and skill in administering a trust that is reasonable in the circumstances
When investing, a trustee must exercise the care and skill that a prudent person of business would exercise in managing the affairs of others (for example, diversification of trust investments, tax issues, effect of inflation etc. A passive trustee could exposed to claims for any losses incurred)
Must not exercise a power directly or indirectly for the trustee’s own benefit
Must consider actively and regularly whether the trustee should be exercising one or more of the trustee’s powers
Must not bind or commit trustees to a future exercise or non-exercise of a discretion
Must avoid a conflict between the interests of the trustee and the interests of the beneficiaries
Must act impartially in relation to the beneficiaries and must not be unfairly partial to one beneficiary or group of beneficiaries
Must not make a profit from the trusteeship of a trust
Must not take any reward for acting as a trustee, but this does not affect the right of a trustee to be reimbursed for the trustee’s legitimate expenses and disbursements in acting as a trustee
If there is more than one trustee, the trustees must act unanimously
Default Trustee Duties apply unless specifically excluded by the trust documents. Whether these default duties are excluded is an important consideration and Grant and Michelle recommended trustees take advice on which default duties should be dissapplied. A good example in the context of property investment is the ‘duty to invest prudently’ and the high level of care and skill required by the New Act. This duty has traditionally been disapplied under the old Trustee Act 1956. If it is not disapplied under the New Act, would that call into question the composition of a trust’s existing property portfolio and, for example, whether it is properly diversified?
Trustees are obligated to keep a robust paper trail of all core documents relating to the trust for the life of the trust, to be held by at least one of the trustees during their trusteeship (though best placed with your lawyer for storing in their deeds room for safe keeping). This includes the trust deed and any trust variations, records of trust property (asset registers, liabilities, income and expenses and records of trustee decisions). The list of documents to be kept is non-exhaustive and will vary between trusts depending upon the purpose of the trust and how active it is.
Harris Tate also pointed out that the New Act also allows the extension of the duration of a trust to a maximum duration of 125 years. Extending the duration of a trust in the context of other amendments to bring the trust into line with the New Act is a good way to future proof the trust but it is not an obligation for the trust to stay operating for 125 years.
There are new provisions relating to restrictions on trustee exemption and indemnity clauses in the trust deed, which in a nutshell, mean a trust deed can no longer limit a trustees liability for breach of trust which arise as a result of the trustees dishonesty, wilful misconduct or gross negligence, and nor can the trustee be indemnified out of trust property for such breaches and any such clause that purports to do this, will be invalid. Therefore, for existing trusts the existing exclusion and indemnity clauses will need to be reviewed to ensure that they are compliant with and not fall foul of the New Act.
In summary, Grant Harris remarks that the New Act is designed to make trust law simpler and transparent and that the New Act is actually a good thing but there are aspects which could be problematic for trustees if not addressed. There are ways of managing and mitigating the effects of the New Act which are best discussed with your lawyer during a comprehensive review.