The Trusts Bill is probably the biggest thing to happen to trusts in decades. This Bill is currently before Parliament, but when enacted, it will dictate why and how trusts are both established and managed for decades into the future.
Everyone concerned with trusts (especially those who have settled a trust, are a trustee or a beneficiary) should have a look at the Trusts Bill. If you start to read the Bill, you may be surprised how readable it is because the Bill’s aim is for simple and easy to understand language, and it mostly meets that aim.
The idea of this Bill is to bring a lot of trust law into one place and to make the law more accessible. It also provides basic management rules that will be required and a mechanism to resolve disputes. The Bill replaces some other Acts (e.g. Trustee Act 1956), but allows the continuation of judge-made law to continue, so that trust law evolves through the courts.
For me, the biggest and most welcome change concerns trust management. Much trust management in New Zealand is abysmal. There are many trusts that have no guidance from a professional (lawyer or accountant) and, left to their own devices, many have managed trusts as if the trust assets are their own.
Regrettably and often to their cost, people who have established trusts do not realise that trust assets are no longer their own personal assets. Those who have settled trusts have to put aside their own narrow self-interest and manage the assets for all beneficiaries.
The demands of trust management have always been much greater than imagined but, with the enactment of this Bill, those demands will be spelled out clearly: record keeping and the proper exercise of the duties and powers of trustees become critical. In this respect there will be mandatory duties (must-dos) and default duties (must-dos unless the trust deed says otherwise).
When enacted, the provisions will apply to existing trusts and they will have 18 months to ensure that they comply. My guess is this will be a field day for lawyers as they help their clients prepare for the new law.
I hope that this Bill means a lot of energy goes into people deciding whether or not they ought to continue with a trust – many will decide that they get little benefit from the trust and that this is the time to wind it up. For those who do find they still have good and compelling reasons for a trust, good management and record keeping systems will be essential.
This management may cost, but it has always seemed pointless to me to have a trust and manage it in such a way that the trust will not pass scrutiny. I have said it before but it bears repeating: sloppy trust management is like paying to insure the house, but then going out and leaving all the doors unlocked.
Martin Hawes is the Chair of the Summer KiwiSaver Investment Committee. He is an Authorised Financial Adviser and a disclosure statement is available on request and free of charge, or can be found at www.martinhawes.com.