The Law Commission has recommended that a new framework is needed to provide a clear and robust approach for New Zealand trusts in the 21st Century. The Commission is undertaking a three part review of trust law in New Zealand and presented the first report to Parliament on 11 September 2013.
The Law Commission report focuses on the essential nature of trusts and recommends the introduction of a new Trusts Act (‘new Act’) to replace the Trustee Act 1956, which the Commission believes has become outdated. A selection of the recommendations in the report are summarised below:
Core trust concepts
- That the new Act provides a statutory definition of “trust”, setting out the specific requirements necessary for a trust. It is hoped a clearer definition will assist the courts in addressing possible “sham” trusts.
- That the new Act clearly sets out the duties of trustees. While not creating new duties per se, the purpose is to make the law clear and accessible. The new Act would introduce six mandatory duties and eleven default duties, which will apply unless the trust deed indicates otherwise.
- That trustees be barred from limiting their liability or receiving an indemnity for gross negligence, which aligns with the current position in cases of dishonesty or wilful misconduct.
- That provisions be enacted that broadly empower trustees. The Commission believes the current Act unduly restricts trustees’ powers, and that the duties on trustees will be sufficient to control any inappropriate use of trustees’ powers.
- That trustees be able to invest funds, with discretion to determine whether the return is “income” or “capital”. The focus is on the overall return, meaning investment managers can also be appointed.
- That the rules relating to changing trustees be amended, as the current legal framework is difficult and often necessitates the court’s involvement.
Court powers and jurisdiction
- That the court be given wider powers in its role of overseeing trusts and reviewing trustees’ decisions.
- That the District Courts have the same jurisdiction as the High Court to deal with trusts, provided the amount involved is within the court’s monetary limits. The report also recommends the Family Court have jurisdiction in certain cases.
- Promotion of Alternative Dispute Resolution in the new Act, as well as an increased role for the Public Trust to alleviate dependence on the courts.
General trust issues
- That the rule against perpetuities for new trusts be extended from 80 to 150 years.
- That the Property (Relationships) Act 1976 be amended to enable the Family Court to make orders compensating a partner by way of trust assets, where their claim would otherwise have been defeated.
- While many of the recommendations simply clarify the existing law, the Commission recognises the new regime will widely impact the estimated 300,000 – 500,000 trusts currently in New Zealand.
Whether the Government approves the report remains to be seen, although the Minister of Justice has acknowledged that a revamp of trust law is overdue. In the meantime, the Commission will continue with the final two stages of review, which relate to charitable trusts and corporate trustees. For a full list of the proposed changes refer to the Commission’s website: www.lawcom.govt.nz/publications.
Copyright © Cavell Leitch. All rights reserved. Redistribution is only permitted with express written permission. For enquiries please contact us. This article by its nature cannot be comprehensive and cannot be relied on by clients as advice. It is provided to assist clients to identify legal issues on which they should seek legal advice. Please consult the professional staff of Cavell Leitch for advice specific to your situation.