One of the most discussed and misunderstood changes brought in by the Trusts Act is about the provision of basic trust information and further trust information 

The newness of the Trusts Act 2019 and the complexities of trust law generally mean myths and misconceptions about the Act abound.

Here, we deal with 10 of the most common misunderstandings about the Act and its application to practice.

The Trusts Act applies only to trusts settled on or after 30 January 2021The Trusts Act came into effect on 30 January this year but it has far-reaching retrospective consequences for trusts settled before this date.

Section 5(3) of the Trusts Act provides that the Act applies “to all express trusts despite anything to the contrary in the terms of a trust”, with certain limited exceptions. The application of the Act to all trusts requires careful review of express trusts existing before 30 January 2021 to ensure compliance.

The term ‘express trust’, defined in s 12 of the Trusts Act, encompasses discretionary family trusts.

Vesting orders are no longer required
Another common misconception about the provisions of the Trust Act is that vesting orders are no longer required. Sections 116 and 117 of the Act has introduced changes to the way trust property is divested and vested in situations where a trustee has been appointed, retired or removed.

However, it is important to appreciate that the procedure available under the Trusts Act applies only where the document of removal was signed after the Trusts Act came into full force and effect. This was confirmed in Camroc Lewis Trust v Lewis NZHC [2021] 585 at [14] to [19].

The initial settlement does not need to be identified so long as there is a subsequent settlement of a trust asset
The initial settlement onto a trust is often a nominal $10 or $20. However, this settlement is an essential element of trust validity.

In JEF v GJO [2012] NZHC 1021, an appeal of a Family Court decision challenging the validity of a trust due to the absence of the initial settlement, the High Court held that the applicable timeframe to remedy the omission (of payment of the initial settlement) was the relevant statutory limitation.

Moving forward, significant care is required to identify the initial settlement as s 15(2) of the Trusts Act provides a trust created in accordance with
s 15 of the Act commences only when a trustee holds property of the trust.

This means there can be no trust to acquire or receive further assets until the trust commences following fulfilment of the requirements of s 15 of the Trusts Act.

There is a duty to disclose basic trust information
One of the most discussed and misunderstood changes brought in by the Trusts Act is about the provision of basic trust information and further trust information. See ss 49 to 53 of the Trusts Act.

Importantly, there is no duty of disclosure; rather, there are presumptions that must be determined by reference to the procedure in s 53 of the Act, referencing the factors (a) to (m) that the trustee ‘must consider’.

Disclosure is made only once
Many trustees believe that once they have made disclosure to the beneficiaries of the basic trust information, they are off-the-hook and have no further reporting obligations. This is, of course, wrong.

The disclosure of information to beneficiaries is an ongoing exercise. Trusts are not static and s 51(4) of the Trusts Act requires the trustees to consider at reasonable intervals whether they should be making basic trust information available.

There is also the requirement in s 51(3), which provides that basic trust information includes the “occurrence of, and details of, each appointment, removal and retirement of a trustee as it occurs”.

The maximum duration means you can increase the trust period by resettlement
Section 16(1) of the Trusts Act provides for the maximum duration of trust to be 125 years. However, the maximum duration does not override any trust period or mechanism in the trust deed.

Importantly, s 17 provides that the maximum duration ‘rule’ applies to resettlements and specifies that where property is held on a trust to which s 16(1) applies (the maximum duration of a trust is 125 years), the maximum duration that may elapse between property being settled on the first trust and being finally distributed is 125 years.

If the trust deed does not have a power of variation, this will be inferred for the purposes of modifying and excluding default duties
Sections 29 to 38 set out the default duties that must be performed by trustees unless modified or excluded. This means considerable care is required to read trust deeds in light of the default powers.

Importantly, in the absence of any power to vary the trust deed, the Trusts Act does not provide a mechanism for variation to modify or exclude any default duties.

If a trust adviser is not a trustee, there are no implications for failure to meet the obligations to alert settlers to the modification or exclusion of default duties and exemption and indemnity clauses in a trust deed
Advisers have obligations irrespective of whether the adviser is named as a trustee in the trust deed or is later appointed as a trustee.

It is correct that there are no financial penalties provided for in the Trusts Act. However, in its Review of the Law of Trusts, the Law Commission recommended that “the professional bodies for lawyers, accountants and financial advisers should develop guidance, perhaps in their codes of conduct, to help ensure that their members develop appropriate practices.

“A breach of the statutory obligation to explain exemption clauses would likely result in disciplinary sanctions by the relevant regulatory body.” The commission noted that this is similar to the approach taken by the Law Commission for England and Wales in Trustee Exemption Clauses (Law Com No 301, 2006).

The Trusts Act requires that there must be an independent trustee
The Trusts Act does not specify any requirement for independent trustees. However, consideration must be given to the default duties in ss 29 to 38, which apply unless modified or excluded.

Separately, who the trustees of any trust are should reflect the nature of the trust’s assets and the beneficiaries and fitness for purpose of each trustee.

Public Trust can be appointed to any trust by the trustees or a beneficiary whenever it is necessary or desirable to appoint a new trustee
There is no provision in the Trusts Act (or elsewhere) that compels the appointment of Public Trust as a trustee by trustees or beneficiaries. Section 114 of the Trusts Act provides for the court to appoint Public Trust. However, before making such an appointment, Public Trust must have an opportunity to be heard on the matter.

Vicki Ammundsen is a director of Vicki Ammundsen Trust Law Limited. This article originally appeared in LawNews (ADLS) and is here with permission.