Trustee duties & beneficiary rights

Trustee duties & beneficiary rights

New Zealand’s Trusts Act 2019 came into force on 30 January 2021 and applies to existing and new trusts.

Key changes include:

• Duties and responsibilities of trustees
• Beneficiary rights to information
• Trust documents and record-keeping

Duties of trustees

The Trusts Act 2019 specifies mandatory and default duties of trustees.

Mandatory duties can’t be modified or excluded by the trust deed. All 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 the trust property and act for the benefit of the beneficiaries in accordance with the terms of the trust deed
• Exercise their powers for a proper purpose.

Default duties apply unless they are modified or excluded by the trust deed. They include:

• General duty of care
• Invest prudently
• Not exercise power for own benefit
• Actively and regularly consider exercise of powers
• Not to bind or commit trustees to future exercise of discretion
• Avoid conflict of interest
• Impartiality
• Not to profit from trustee position
• Act for no reward
• Act unanimously

Beneficiary rights to information

A purpose of the Trusts Act 2019 is to ensure that beneficiaries have sufficient information to enable them to enforce the terms of the trust.

The rules have two parts:

• Disclosure of basic trust information to all beneficiaries
• Responding to a beneficiary’s request for information

Disclosure of basic trust information

The Trusts Act 2019 contains a presumption that trustees must tell every beneficiary:

• That they are a beneficiary of the trust
• The names and contact details of the trustees
• When trustees are appointed, removed or retire
• That they can ask for a copy of the deed or trust information.

The trustees must regularly consider at reasonable intervals whether they should make basic trust information available.

Before providing this information, the trustees must consider the factors in section 53 of the Act. The trustees may decide to withhold some or all the information from one or more beneficiaries or classes of beneficiaries, if they reasonably consider that the information should not be made available.

The section 53 factors are:

• The nature of the beneficiary’s interest in the trust including the likelihood of receiving a benefit
• Whether the information is subject to personal or commercial confidentiality
• The expectations and intentions of the settlor when creating the trust
• The age and circumstance of the beneficiary and the other beneficiaries of the trust
• The effect of disclosure on the beneficiary, the trustees, other beneficiaries, and third parties
• The effect of disclosure on family relationships, and relationships between the trustees and some or all of the beneficiaries to the detriment of the beneficiaries as a whole
• In a trust with a large number of beneficiaries or unascertainable beneficiaries, the practicality of giving the information to all beneficiaries or all members of a class of beneficiaries
• The practicality of imposing restrictions or safeguards on the use of the information or subject to redactions
• Any other factor the trustees reasonably consider is relevant to determining whether the presumption applies.

Trustees must consider the above factors carefully and in compliance with their trustee duties. We recommend that trustees seek legal advice before deciding to withhold information from a beneficiary.

The trustees may give the information to a parent or guardian of minor beneficiaries (anyone under the age of 18) or those who lack capacity.

Disclosure of information on request

The Trusts Act 2019 contains a presumption that trustees must give a beneficiary the trust information that person has requested.

Trust information is information about the trust deed, trust administration and trust property that is reasonably necessary for the beneficiary to be able to enforce the trust. Trust information does not include the reasons for trustees’ decisions.

Trustees can require the beneficiary to pay the reasonable cost of providing the information before providing it.

Before proceeding, the trustees must consider the section 53 factors and the nature and context of the request for the information. We recommend that trustees seek legal advice before making their decision.

Trust documents

The Trusts Act 2019 requires trustees to keep core trust documents.

Every trustee must keep a copy of the trust deed and any variations.  At least one trustee must keep the other core trust documents.

When a person ceases to be a trustee, they must give the trust documents they hold to a replacement or continuing trustee.

Core documents include:

• Trust deed and variations to the deed
• Details of assets and liabilities
• Records of the trust property that identify the assets, liabilities, income and expenses of the trust.
• Records of trustee decisions
• Written contracts
• Accounting records and financial statements
• Appointment and removal of trustees
• Letter or memorandum of wishes by the settlor
• Any other documents necessary for the administration of the trust.

We recommend that trustees:

• Open a separate bank account for the trust. Trustees must deposit all trust income into the account and pay all trust expenses and distributions from the account.  Trustees must not use the account for personal transactions.
• Record all important decisions in a written trustees’ resolution. The resolutions should be kept in a trust minute book. Important resolutions include to buy, sell, borrow, lend, guarantee, lease and distribute.
• Meet at least annually to review the trust investments, financial statements and needs of beneficiaries.
• Seek advice from a solicitor or accountant if in doubt about anything concerning the trust administration or the actions of other trustees.
• Prepare detailed annual financial statements. Financial statements plot the journey of the trust and give a financial snapshot of the trust on its annual balance date. They are a key tool for managing and reviewing the trust and give the trustees the information they need to administer the trust and exercise their powers and duties.

Summary

Trusts are an effective asset planning tool when used correctly.

Settlors and trustees should review their trusts to ensure they meet current and future needs:

• Are the reasons for setting up the trust still relevant?
• Does the trust deed need any changes?
• Are we performing our duties in accordance with the Trusts Act 2019?
• Where are all the core trust documents? What do we need to do to comply with the Trusts Act 2019?
• How will we meet our obligations to provide information to beneficiaries?
• Do the financial statements disclose the sources of the trust’s capital, settlements and settlor advances, market values of investments, details of beneficiary distributions and current accounts?
• How much will the increased compliance obligations cost?

How we can help

At Raymond Khouri Chartered Accountants we have extensive experience and offer specialist advice on creating and managing your trust.

Ask Us about our Trust Administration, Trust Accounting and Trust Tax services.

We also offer our Trust Risk Review service. It includes:

• Checking that deeds and minutes are up to date and on file
• Checking that registers recording trustees, beneficiaries, significant events and gifting are properly maintained
• Ensuring that the trustees are undertaking a regular and appropriate review of trust investments and other strategies for the future
• Checking that your Wills, Powers of Attorney and Memorandum of Wishes are up to date

More information

Benefits of a family trust

What is a trust and how does it work?