Trusts Law update 2020

The introduction of the new Trusts Act 2019 (the Act) has brought about a number of changes intended to modernise the existing trust law framework and provide a better level of guidance for trustees in order to carry out their duties.

It is intended that the Act will address concerns over 'sleeping trustees', by codifying the mandatory and default duties on trustees, thereby clearly setting out the obligations in one place.

The majority of the Act's new provisions will come in to effect on 30 January 2021 meaning trustees must be familiar with the incoming changes now to ensure that they will understand their responsibilities come January next year. The main obligations are as follows:

• Codifying trustee duties
• Retention of records and core trust documents
• Disclosure of information to beneficiaries

These obligations are expanded on in further detail below.

Trustee duties

The Act will codify a number of duties for trustees, which are split into two categories:

Mandatory duties:  those of which trustees must comply with.  They cannot be modified or excluded by the terms of the trust deed. These mandatory duties are that a trustee must:

• Know the terms of the trust;
• Act in accordance with the terms of the trust;
• Act honestly and in good faith;
• Act for the benefit of the beneficiaries, and hold or deal with trust property for their benefit; and
• Exercise the trustee’s powers for a proper purpose.

Default duties: those of which trustees will have to comply with unless the duties are modified or excluded by the trust deed.  The default duties are that a trustee must:

• Exercise reasonable skill and care in administering the trust;
• Invest prudently;
• Not exercise their power for their own benefit, whether directly or indirectly;
• Regularly and actively consider how their powers are being exercised;
• Avoid conflicts of interest;
• Act impartially between beneficiaries;
• Not make a profit from being a trustee; and
• Act unanimously with the other trustees.

Trustees must ensure that they understand these duties and actively carry them out. Trustees should also consider whether their current trust deed adequately modifies or excludes some of the default duties or whether it is appropriate for any of the default duties to be modified or excluded from the trust deed by amending the trust deed if possible.  

Retention of records/core trust documents

Under the Act, one trustee is now required to retain all 'core documents' for the duration of the Trust.  The documents that must be held are as follows:  

• The trust deed and any other document that contains terms of the trust;
• Any variations made to the trust terms;
• Records of trust property that identify the assets, liabilities, income and expenses of the trust;
• Records of trustee decisions made during the trustee’s trusteeship;
• Written contracts entered into during that trustee’s trusteeship;
• Accounting records and financial statements prepared during that trustee’s trusteeship;
• Documents of appointment, removal, and discharge of trustees;
• Any letter or memorandum of wishes from the settlor;
• Any other documents necessary for the administration of the trust;
• Any of the above documents that were kept by a former trustee and passed on to the current trustee.

As a result, trustees should consider who among them will hold the records of the trust.  All other trustees may request to view the documents at any time.  All trustees are required to hold a copy of the trust deed and any other document that contains the terms of the trust (e.g. any variations made to the terms of the trust).

Disclosure of information to beneficiaries

The Act introduces a disclosure obligation, which is designed to make sure that beneficiaries have appropriate information to enable the terms of the trust and trustees' duties to be enforced.

The Act creates a presumption that a trustee will make 'basic information' available to every beneficiary or representative of the beneficiary, as well as a presumption that a trustee will make other trust information available to a beneficiary or representative of the beneficiary when requested.  However, there may be occasions where the presumption will not apply, and the information may be withheld.  These situations are expanded on further below.

Basic information relating to the trust is as follows:

• the fact that a person is a beneficiary of the trust;
• the name and contact details of the trustees; 
• the occurrence of, and details of, each appointment, removal, and retirement of a trustee as it occurs; and
• the right of the beneficiary to request a copy of the terms of the trust or trust information.

Trust information is defined broadly and means any information regarding the terms, administration, or property of the trust and any information that is reasonably necessary for the beneficiary to enforce the trust.   

Before providing basic trust information and/or trust information, trustees must consider a range of factor set out in the Act (at section 53).  If a trustee reasonably considers (after reviewing those factors) that trust information should be withheld, the trustee may withhold that information.  A trustee does not need to provide reasons for withholding certain information.

Who are the beneficiaries?

Trustees should consider who the beneficiaries of the trust are or may include in advance of January 2021.  The key point to be aware of is that beneficiaries include discretionary beneficiaries, i.e. those that may receive a benefit from the trust at the discretion of the trustees.  As with all beneficiaries, there is a presumption that discretionary beneficiaries will have basic information made available to them and may have other trust information provided when they request it.  

As a result, trustees should review the terms of their respective trusts to carefully consider who the beneficiaries are and whether the terms of the trust can and should be amended to adjust the class of beneficiaries. 

Can I amend my Trust?

Many trust deeds will provide trustees with the ability to amend the trust deed, possibly with the consent of the settlor. 

Where the trust deed does not provide this, as maybe the case for many old trust deeds, it may be possible to re-settle the trust assets on a new trust that meets the preferred requirements.  

In light of the additional requirements that trustees will be subject to, it may be time to consider whether a trust is still necessary or whether it should be wound up.

Next Steps

The new codified trustee duties, record retention obligations and information disclosure requirements will require trustees to take stock of their current level of involvement with their trusts and potentially require them to become more active in management going forward.  

In advance of 30 January 2021, trustees should:

• Review the trust deed and consider who the discretionary beneficiaries are.
• Familiarise themselves with the trustee duties identified above.
• Determine what core trust documents are/are not currently held and who will be responsible for holding the core documents going forward.
• Consider what information should not be made available to beneficiaries. 
• If amendments are necessary, whether the trust deed provides the ability to amend.

Our experienced team is here to help and we encourage you to reach out if you would like to discuss any of the above.