Kiwis love trusts – we have up to 500,000 family trusts in New Zealand. We use them for all sorts of reasons, but mainly as a way to protect wealth. Trusts were once a bit of a free-for-all, but over the past decade or so, the law has been clamping down on how trusts must be run. The latest change is the introduction of the Trusts Act 2019, which gives us more clarity on how trustees must act and how trust beneficiaries must be kept informed.
So what do you need to do differently under the new rules?
As a trustee, what do I need to do?
If you’re a trustee, your duties are now set out in the new Trusts Act. There are mandatory duties that always apply, like acting honestly, and default duties that only apply if your trust doesn’t modify or remove them. Check those duties and make sure you’re opting out of default duties that don’t suit your trust. For instance, the duty to “invest prudently” could arguably require diversification if you don’t opt out. You should take independent legal advice about your trust before the January 30 deadline.
The first step is to make sure you provide the beneficiaries of the trust with the right information before January 30, 2021.
I’m a beneficiary – what changes for me?
If you’re a beneficiary, you should get basic trust information without needing to ask for it:
- You are a beneficiary of this trust.
- These are the names and contact details of the trustees.
- You can request a copy of the terms of the trust, and more information.
You can then request more information, you should get:
- Details of the terms and administration of the trust.
- Any information that is required for you to see that the trust is being run correctly. That will probably include financial statements.
What if I don’t want my kids to know how much is in the trust?
Sometimes trustees don’t want beneficiaries to know about what’s in a trust, often if it’s to do with an inheritance for the kids or grandkids. There is a process to help trustees work though a situation like this, which can result in partial information supplied to beneficiaries. You’ll need to work with your lawyer and your accountant to make sure your trust complies with the new rules.
Is my trust still going to work as I want it to?
In the past, there were lots of reasons to set up a trust. With these changes, and earlier legislative tweaks, trusts don’t provide the blanket protection they once did. When it comes to protecting relationship property or reducing your testable means, for instance, you should review your trust/s – they may not be protecting you as much as you think.
Every case is different, and this is an area of finance where the right advice is crucial. You need to consult your accountant and your lawyer about your situation – give us a call today to talk about the potential tax implications of any trust changes.