On 10 November 2016 the New Zealand Government released a consultation draft Trusts Bill, seeking to update the general law governing trusts in New Zealand. The Bill restates and reforms the Trustee Act 1956, marking the first significant change in 60 years.
The Bill has been developed in response to recommendations for modernising and clarifying trust law made by the Law Commission in 2013, as well as advice from a reference group of trust experts, who considered the Law Commission’s recommendations and provided valuable input into refining them.
The Bill is designed overcome a number of problems with the current Act, including:
- the current law of trusts is overly complex and hard to navigate;
- the Act is outdated, does not reflect trust practice and is narrow in scope; and
- trust administration is complicated and expensive.
The new legislation is not an exhaustive code of the law relating to trusts, but rather seeks to enhance current law. Thus, the Bill will not require existing trust deeds to be changed, “because it largely restates the existing law” (from the Trustee Act 1956 and common law) in plain language. The proposal adopts 48 of the Law Commissions 51 recommendations and, if approved, will see significant changes to the regulatory framework in which New Zealand Trusts operate.
The draft legislation sets out clear, defined trustee powers which will enable trustees to operate trusts efficiently and with increased certainty and clarity. In addition, mandatory trustee duties will be implied into every trust (whereas default trustee duties can be modified or excluded either expressly or implicitly by the terms of the trust.) Trustees will also be unable to protect themselves through an exoneration clause against litigation in circumstances where a breach has arisen from dishonesty, wilful misconduct or gross negligence.
A further significant amendment is the proposed extension of the ‘Perpetuity Date’, set to increase from 80 to 150 years. This will allow trust assets to be held for the benefit of a wider class of beneficiaries over this extended time period, including further generations of lineal descendants.
The proposed legislation will therefore have a significant impact on the estimated 300,000 – 500,000 Trusts currently in use in New Zealand. The government is seeking feedback on the draft Bill up until 5pm on Wednesday 21 December 2016. After the consultation period, it will analyse the submissions and report to the Justice Minister. The Justice Minister may then seek Cabinet’s agreement to introduce the Bill to Parliament. It is expected that a final version of the Bill will be introduced to Parliament in 2017.
This bill seems to provide a welcome update to the outdated legislation currently in place in New Zealand and brings it more in line with other jurisdictions. It is possible such changes could bring about an increased use of New Zealand trusts.