Family Trusts And The New Trusts Act 2019
4 September, 2020 | Alex Dunne
The Trusts Act 2019 (“the Trusts Act”), which has recently been passed, will affect all Trusts from 1st February 2021.
The Trusts Act has significantly changed how Trusts are managed in New Zealand. Previously, Trusts have been managed largely by interpreting case law rather than by Act of Parliament. The Trusts Act which has now been put in place will govern all Trusts and all Trustees will be bound by this law. The Law changes how Trusts are to be managed including; setting out in legislation basic Trustees duties, which had previously been the subject of interpretation by the Courts. Included in the new legislation is an obligation for Trustees to make disclosure to beneficiaries and details of what information beneficiaries are entitled to receive.
Compliance Costs and Disclosure
Independent Trustees such as solicitors and accountants, will now require the Trusts that they administer to comply with the Trusts Act. The cost of compliance will be passed on to clients. Solicitors and accountants including Smith & Partners will charge for the work that they do in administering Trusts, when previously they did not charge.
Many clients will not like the disclosure obligations of the Trusts Act as previously they, with their lawyer or accountant, had administered their Trust without disclosure to children and grandchildren. The worry is that the disclosure requirements of the legislation will lead to a “paper war” with children and grandchildren (supported, no doubt, by the natural inquisitiveness of the spouses of those children and grandchildren) which was never intended by the parents when they established the Trust.
The added compliance costs of the new legislation coupled with the disclosure regime will cause many families to consider whether or not their Trust is fit for purposes.
These considerations are magnified by the fact that the majority of Trusts no longer immunise the Settlors and beneficiaries from rest home payments or from matrimonial or relationship property claims.
Anti Money Laundering and Countering of Financing of Terrorism Act (“the AML Act”)
The AML Act is another recent Act that Trusts are required to comply with. All Trusts are captured by this Act of Parliament. Under this legislation, dealing with Trusts is a complicated process. AML documentation will be required for all trustees, and often the beneficiaries also. This will add to the overall cost when any transaction involving a Trust is being completed.
There are a number of options that are available. These include:
- Winding up the Trust if it is no longer fit for purpose. Smith and Partners expect a fee of between $2,500.00 to $3,500.00 (plus GST, office expenses and disbursements) for this to be completed. This is based on one property, one mortgage, 1, 2 or 3 NZ based trustees and no company or other Trust involvement and includes a review of Wills and Enduring Powers of Attorney.
- Reviewing the identification of beneficiaries to minimise the impact of the disclosure requirements. Smith and Partners can help you with the required amendments. The fee for this would be between $2,000.00 to $3,000.00 (plus GST, office expenses and disbursements). Included in this fee range is a review of Wills and Enduring Powers of Attorney.
If, after consideration and discussion, the decision is taken to continue with the Trust, Smith and Partners would still suggest that a review be carried out of the Trust to ensure that it is still fit for purpose in light of legislative changes. The trustees should also be brought up to speed on all their obligations and duties. The fee for a review will be between $450 – $650 plus GST and office charges. Smith and Partners would then be able to advise you on our suggestions as to what changes should be made and the expected costs for those, together with the ongoing compliance costs of maintaining the Trust.
Smith and Partners appreciate that this article contains a lot of information and if you have any questions Smith and Partners would be happy to talk you through this further in more detail. Please contact Alex Dunne on email@example.com.