Can I Trust in My Trust
Last week we hosted the Can I Trust in My Trust Seminar with a great attendance and some really good feedback.
Trusts have been around since the 12th Century during the time of the crusades. In NZ, Trust legislation is governed by the Trustee Act 1956 and a lot of case law thereafter. So it’s not surprising it’s difficult to understand and hard to navigate for non-professional Trustees.
This is about to change with the Trusts Bill which will clarify core Trust principles and essential Trustee obligations. At the moment, the Bill is at its second reading. The next steps are presentation to the Committee of the Whole House, a Third Reading and Royal Assent to become legislation.
It’s estimated there are between 300,000 - 500,000 Trusts in NZ and according to a survey of Trustees by Perpetual Guardian last year, “if running a trust could be compared to driving a car, many trustees/drivers were asleep at the wheel”.
The majority of NZ Trusts are Family Trusts, set up by ordinary families to ‘protect’ assets like the family home, farm or inheritance. ‘Protect’ was a word once used to otherwise mean avoiding death duties, means testing for residential care subsidies, not paying legitimate creditors and relationship claims. However, many of the ‘protections’ that were once the reason people set up a Trust and sold their assets into a Trust have either been weakened or become obsolete.
Part of what the Trust Bill will include into legislation is mandatory Trustee duties that have been developed by a lot of case law as best practice over the years. Some of the Trustee’s duties include knowing the Trust Deed, acting according to its rules, keeping formal accounts of assets and keeping a minute book of decisions made.
Remember, a Trustee holds the assets of the Trust for the Beneficiaries of the Trust, not for themselves.
That prudent investment means investing in a way that an ordinary person would when investing money ‘held for the benefit’ of other people and not what they would consider to be prudent when investing their ‘own’ money.
The Trust Bill will also strengthen the rights of Beneficiaries by giving them clear rights to Trust information and that means they can play a bigger role in keeping Trustees honest to the rules of the Trust. Failure by Trustees to adhere to their duties and to the rules could mean personal liability.
The question is will the new Trust legislation awaken the sleeping trustees/drivers? And what do they need to know and need to do now? For Family Trusts that were setup for asset ‘protection’, are the risks still the same and is the Trust still ‘protecting’ those assets? Is my Family Trust still relevant?
It’s a good question and something that should be considered by Trustees and discussed with their professional advisors, which include both their lawyer and their accountant.