The Trusts Act 2019 (the Act) updates and improves the law governing trusts since the Trustee Act 1956. Many of the key changes aim to make trust law more accessible and to enable beneficiaries to hold trustees more accountable. The Act applies to existing trusts in New Zealand, as well as any trust created on or after 30 January 2021. The changes have resulted in a number of practical implications for both trustees and beneficiaries to note. To help unpack the Act, this article answers frequently asked questions about trust law in New Zealand.

What are Mandatory and Default Duties?

The Act has divided the core trustee duties (which were already part of the law) into mandatory duties and default duties.

Mandatory duties must be performed by the trustee and cannot be modified or excluded by the trust deed. The five mandatory duties are to:

  1. know the terms of the trust;
  2. act in accordance with the terms of the trust;
  3. act honestly and in good faith;
  4. deal with trust property and act for the benefit of beneficiaries following the terms of the trust deed; and
  5. exercise trustees' powers for a proper purpose.

Default duties can be excluded or modified in the trust deed. The ten default duties are as follows:

  1. general duty of care;
  2. to invest prudently;
  3. not to exercise a power for a trustee's own benefit;
  4. to consider the exercise of a power;
  5. not to bind or commit trustees to future exercise of discretion;
  6. to avoid a conflict of interest;
  7. duty of impartiality;
  8. not to profit;
  9. to act for no reward; and
  10. to act unanimously.

Do I Have to Retain Core Trust Information?

The Act requires trustees to keep core trust documents and records, including:

  • the trust deed;
  • documents setting out the terms of the trust or varying those terms;
  • records of the trust property;
  • records of trustee decisions;
  • contracts and financial statements;
  • letters of wishes by the settlor; and
  • other documents necessary for the administration of the trust.

It is acceptable for one trustee to hold most of these documents. However, each trustee must hold at least a copy of the terms of the trust and any variation to those terms.

Do I Need to Disclose Trust Information to Beneficiaries?

Previously, there was no duty on the trustees to notify beneficiaries that they were the beneficiaries of the trust. However, today, there is a presumption that a trustee must make basic trust information available to every beneficiary.

'Basic trust information' includes the following:

  • the fact that a person is a beneficiary;
  • the name and contact details of a trustee;
  • details about any change to the trust; and
  • the fact that a beneficiary may request a copy of the terms of the trust or any information that is reasonably necessary for the beneficiary to enforce the trust.

However, the Act sets out a number of factors that trustees must consider before deciding whether to provide basic trust information to beneficiaries. If the trustee reasonably considers that they should not disclose certain information, they may do so.

Is There a Limit on Liability and Indemnity Clauses?

The Act clarifies that trust deeds must not limit or exclude a trustee's liability or provide an indemnity for dishonesty, wilful misconduct or gross negligence.

Any terms in a trust deed that aim to broadly limit the liability of the trustee or to indemnify them in breach of these provisions are invalid. Trustees may still be protected in relation to ordinary negligence if an appropriately drafted clause covers this.

Who are Special Trust Advisers?

The Act now allows the ability to appoint a 'special trust adviser' to advise the trustee. This adviser will not have the power of a trustee, and the trustee will not be bound to follow their advice.

How Do I Remove a Trustee?

The Act has simplified the process for removing a trustee. It provides that:

  • the person named in the trust deed with the power to remove trustees may remove trustees;
  • if no one is named in the trust deed as having the power to remove trustees, or the person who does is unwilling or unable to act, then the remaining trustees have the power of removal; and
  • if no one is named in the trust deed with the power to remove trustees and there are no remaining trustees who can, then the power falls to either:

The Act has also provided a new requirement for the compulsory removal of a trustee. If a trustee loses capacity, the person who has the power to appoint and remove trustees must use that power to remove a trustee.

Key Takeaways

The Trusts Act 2019 (the Act) is New Zealand's core legislation outlining the rights and obligations of trustees and beneficiaries. The Act aims to make trust law more accessible and allow beneficiaries to hold trustees accountable.