The Trusts Act 2019 was passed on 30 July 2019 replaces the Trust Act 1956.  The new trust law will be effective from 30^th January 2021 and includes clarification of the existing trust laws and some significant changes.

Trustee Obligations and Duties

A lot of our clients have trusts and are also trustees of trusts. However, some of them are not aware of the role and duties of the Trustees, record-keeping and disclosure requirements.

Key Changes

Trustees will no longer be able to keep the trust information from the beneficiaries private, or details of the past and future beneficiary distributions or current account balances owed to the beneficiaries.  The beneficiaries now can request for their current account balances to be repaid to them.

The new reforms now require increased compliance requirements from the Trustees and new disclosures to the beneficiaries.  Some of the various changes introduced are as follows:

The Act outlines which information the Trustees should maintain and for how long. The trustees should be familiar and comply with the record-keeping requirements.

Important Duty, Obligation and Term Changes:

Default Duties – Settlors and trustees should review and consider whether any of the following duties should be amended or excluded by the Trust

• General duty of care
• Duty to invest prudently
• Not to exercise power for their own benefit
• Consider the exercise of power
• Not to bind or commit trustees to future exercise of discretion
• Avoid conflict of interest
• Duty of being impartial
• Duty not to profit
• Act for no reward
• Act unanimously

Mandatory Duties – Trustees should be aware of the following duties which cannot be amended:

• Know the terms of the trust
• Duty to act in accordance with the terms of the trust
• Act in good faith and honestly
• Duty to exercise powers for the proper purpose
• Duty to act for the benefit of beneficiaries or to further the permitted purpose of the trust

Obligation to Beneficiaries – The act outlines what information trustees should provide to the beneficiaries or their representatives.  The disclosures include:

• The fact that the individual is a beneficiary of the trust
• Provide names and contact details of trustees
• Keep the beneficiaries updated with details of any trustee appointment, retirement and removal of trustees as it occurs.
• Provide terms of the trust or trust information if requested by the beneficiary.

Trust Period – the new reforms have now revoked the trust period of 80 years and increased it to 125 years.

In Conclusion

Although, there is increased level of disclosure and trustee obligations, the trusts are still a valid structure to use for asset protection and investment structure.

At GECA we also act as a Professional Trustee for some of our clients and we would like to assist our clients who are also trustees of their trusts.  We suggest contacting us as a starting point to do a thorough review of your trust deed and assisting you with the new trust requirements.

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I meet many people who are trustees of other people’s trusts. Generally these trusteeships are taken on by well-meaning friends or family who have limited, if any, understanding of the obligations and even more importantly – the trustee liabilities.

Of more concern, many people are unsure if they are trustees. I often hear people say they were a trustee a while ago but unsure of the situation now. If this is you, make enquiries now to ascertain the situation.

If you are still a trustee, consider if the original reasons for doing this are still valid and ensure you understand the responsibilities and obligations of the trustee role.  This is particularly relevant if the trust has taxable activities. Trustees have personal liability for any income tax or GST owed by the trust to the IRD.

Note these trustee liabilities are increasing under proposed new trust legislation. Recently trustee roles are more often being held by Professional Trustees to ensure the trust is administered correctly and is able to fulfil the purpose it was set up for.

What to do if you want to resign?

So you have reviewed your situation and decided you no longer want to be a trustee. First review the terms of the trust deed and confirm trustees can retire at their discretion. Where the deed of trust does not expressly permit retirement the Trustee Act 1956 should be referred to.

Any objections?

As the retirement of a trustee can be expensive (especially where the trust has significant property investments, all of which will have to be transferred from the retiring trustee to the remaining or new trustees) the other trustee(s) may not be agreeable to the retirement.   There might also be opposition to retirement where the trustees have liability concerns.

Where retirement cannot be achieved by agreement, a trustee who wishes to retire can give notice of the intention to retire to any co-trustees and any person with the power of appointment and removal of trustees and pass the trust’s accounts to the Registrar of the High Court or can ask the High Court to appoint a new trustee.  This may seem an extreme response.  However, given that a trustee remains personally liable until the trustee has retired this course or action may be preferable than to remaining liable both jointly with the other trustees and personally.

Provided the retirement is by agreement, a deed of retirement should be prepared and signed by all trustees and witnessed.

Following up

Once the trustee has retired, the trust’s property must be legally transferred to the continuing and/or new trustees.  All the trustees must sign the transfer documents for land and shares and any other property owned by the trustees.

Check that the Companies Office records have been updated to show transfers of shares and ask to see a copy of the certificate of title for any land to show that the trustee is no longer listed as a registered proprietor.

A trustee will remain liable for GST until the IRD has been notified in writing that the person is no longer a trustee. Retirement will not avoid any liability incurred before the trustee’s retirement. Ensure the IRD receive written notification of your resignation as soon as possible.

Any signing authorities with banks or other institution need to be updated.

The retiring trustee should also advise the trust’s beneficiaries, investment adviser, accountant, lawyer and any other party the trust has had dealings with that the trustee has retired.

The best thing to protect yourself as a trustee is to have all your trust accounting and tax matters reviewed to both ensure you are protected and that there is a formal schedule of communication with respect to keeping IRD informed of any changes. Call us at GECA today on 0800 758 766.

The post Your trustee liabilities: are you aware of them? appeared first on GECA Chartered Accountants.

Most family trusts in New Zealand have settlors acting as trustees. In the event of their death, it is important that trusts have a trustee to administer the trust according to the settlors’s wishes. It is crucial the trustee understands the wishes of the settlors in regards to administering the trust and treatment of the beneficiaries.

A Memorandum of Wishes (sometimes referred to as a ‘Letter of Wishes’) gives you the ability to guide your appointed Trustees on what the purpose and desired outcome for your Trust assets is.

While it may not necessarily be binding on the surviving Trustees, they will usually follow it.  Your wishes may be documented in absolute terms or in relative terms, it may take into account all of the distributions that have been made to date, or take into account only part of them.

A possible format could be:

Introduction: Why you set up the Trust.

Specific Beneficiaries:  Who you want to benefit and when.  Is a charity to be included?

Context:  Consider the current situation of your beneficiaries, i.e.preschoolers, married with children, financially aware or needing support, etc.

What to do: Specify how you want the Trust to work going forward.

Further points to consider:

• Should distributions be absolute?  E.g. $200,000 each.
• Should distributions be in relative terms?  E.g. each child is to receive sufficient upon the death of my spouse and myself to be able to buy a medium priced house in Hamilton.
• Don’t forget that when the Trustees read your Memorandum of Wishes it will be a sad day as you will have passed away.  Choose these people with care, as it is them who will be taking into account your views and wishes later on.
• Give some thought to the age of the Trustees, and/or if you are considering appointing a family member, could it cause a dispute in the family.  Also consider whether they have a good sense of business and share your family values.

When taking on a professional trusteeship role for our clients at GECA, we ensure a Memorandum of Wishes is completed at the initial Trustees Meeting.  As part of this we cover decisions such as:

1. Do you want the Trust assets dispersed immediately on your death or preserved for a purpose?
   1. Should a home be sold or kept for all?
   2. If dispersed is it to be done on a strictly even basis?

2. Factors to consider in assessing what to leave your children:
   1. What are their ages and stages in life?
   2. What is their matrimonial position?
   3. What have you given them to date?
   4. Does one of your children have special needs that should be considered?
   5. What is the financial maturity of each child?
   6. Consider the amount of wealth you have to pass on

3. Are there specific purposes that the funds should be used for?
   1. Education aspirations
   2. Travel
   3. Repay student loans

If you need help drafting a Memorandum of Wishes or would like the peace of mind that comes with knowing you have a trust that will protect your assets and look after your beneficiaries when you aren’t around, then we can help.

Call Giles now for a no obligation discussion on the set up and administration of your trust on 0800 758 766.

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