Trustees hold the assets of a trust for the benefit of the beneficiaries. Because of this they owe a number of duties, and are accountable for their performance to the beneficiaries.
At the same time as the courts are bringing a more sceptical approach to family trusts, the New Zealand Law Commission is undertaking an extensive review of the law of trusts in New Zealand. Five discussion papers have thus far been issued and can be accessed from the commission website. Many consider these discussion papers are a precursor to legislation the commission will soon recommend to Parliament.
It is not possible to deal with all the issues and insights raised by these papers, but here are some personal observations and interpretations from reading the papers and discussions with other professionals.
The commission appears to be attracted to the US concept of legislation being able to provide a code, much the same as the Companies Act 1993 does in relation to companies.
Nobody has any real idea of how many trusts are out there as there is currently no requirement to register a trust anywhere, unless it is a taxpayer and in that event it will be registered with the IRD. Many believe the commission will recommend trusts become registered, the same way companies are registered.
The concept of a trust ombudsmen has been mooted as one means of providing an inexpensive way to deal with some disputes over trusts, so avoiding the cost of going to the High Court.
Differentiating between paid and non-paid trustees seems to find some favour.
It appears any legislation will focus on trustees duties, rather than beneficiaries rights.
This is the same approach taken in the Companies Act 1993 whereby the focus is on the duties of directors of a company.
Clarifying beneficiaries' rights to receive information and documentation is a desired outcome. At present there is much uncertainty as to what beneficiaries are entitled to.
Knowledge of good trust practices and good administration of trusts is the key to avoid the courts having to intervene in trust affairs.
Although directors of limited liability companies and trustees are very different and play very different roles, they are nevertheless both fiduciaries. Accordingly, the question is why not treat them in the same way? A fiduciary relationship is where one person owes a duty of loyalty to another.
The above are simply a select few observations and the opinion of the writer. Anybody with an interest can visit www.lawcom.govt.nz to read the information themselves.
As family businesses play a major role in the New Zealand business landscape, so do family trusts play a major role in the ownership and succession of those businesses. Accordingly, taking the time to understand the changes evolving in the New Zealand trust landscape is not only important for advisors in this field, but also the owners of those businesses.
In the same way we have published a free report in both 2010 and 2011, we will be publishing our 2012 report in the first quarter of this year.
The focus of this report will be the changing landscape for trusts in New Zealand and recommendations for prudent trust practices.
For a free copy of this report (when available), email This email address is being protected from spambots. You need JavaScript enabled to view it..
• Owen Cooney is a partner at Tauranga-based law firm CooneyLeesMorgan.
The above information is general only and cannot be relied upon as specific advice. Contact your advisor for specific advice before taking any action.
