Trust law to become more accessible

Trusts Bill – A New Path

The new Trusts Bill was finally introduced on 1 August 2017.  It’s awaiting its first reading pending input from the Select Committee.

The purpose of the new Bill is summarised as:

This Bill will replace the Trustee Act 1956 and the Perpetuities Act 1964 to make trust law more accessible to everyday users. The Bill clarifies and simplifies core trust principles and essential obligations for trustees to improve understanding about how trusts operate. Importantly, it also preserves the flexibility of the common law, allowing trust law to continue to evolve through the courts. A purpose of the Bill is to be enabling and avoid prescription in order to accommodate the wide range of circumstances in which trusts are used.

A core focus of the Bill is to provide mechanisms to resolve trust-related disputes, which have been occupying the minds of professional trustees and legal advisers for many years.  Disputes create significant costs to resolve them, usually to the detriment of a trust’s beneficiaries, the very people that trust law is designed to protect.

The Bill also proposes changes the role and responsibilities of trustees (professional or not), placing greater emphasis on the way that they administer a trust and deal with its beneficiaries. It will also provide greater clarity and processes to aid the removal of trustees, particularly where it is shown that they are not acting in the best interests of beneficiaries, or are failing to comply with the terms of the trust deed appointing them or with their statutory duties.

Appointment of Special Trust Advisers

Part 4 of the Bill deals with trustees’ powers and indemnities and sections 70 to 72 provide a new facility whereby a trustee, the court [both under the Bill and Part 3 of the Protection of Personal Property Rights Act 1988] and persons with the power to remove or appoint trustees can appoint, or apply to appoint, a Special Trust Adviser.

This is a new and innovative way by which the administration of the trust can be reviewed by an independent specialist, so that a trustee, beneficiaries by application to court, and indeed the settlor of a trust, can seek information and clarity on the administration of a trust.

For beneficiaries and settlors, this provides a less onerous route than the need of having to seek the removal of a trustee or speculate as to prospective grounds for their removal.

Dispute Resolution under the Bill

In addition to the appointment of a Special Trust Adviser, Part 7 of the Bill deals with court powers in relation to dispute resolution, including powers to review a trustee’s acts, omissions or decisions, and indeed where the court deems it appropriate, appoint a receiver.  It is likely that the Court may also seek to appoint a Special Trust Adviser or Expert Witness to assist in advising the Court.

Role of a Specialist

The Bill, when enacted, will provide the court, trustees, settlors and beneficiaries, and their advisers, opportunities to get greater clarity and transparency on how the management of a trust is being, and should be, carried out.

Specialists appointed to act in the capacity of Special Trust Adviser will need to be competent in understanding the law relating to trusts as well as being able to apply commercial acumen to the resolution of disputes. It’s very likely that the independence, skills and experience of a forensic expert will be required in those situations where incompetence or fraud might be the root cause of the issues or dispute.

Case study – How a Special Trust Adviser adds value

I was recently involved in the review of a long-standing family trust.  You can probably imagine this scenario – the beneficiaries are all family members, the primary purpose of the trust is to provide for the beneficiaries, and on winding up to distribute the net estate equally between the beneficiaries.

During the tenure of the trust, many financial advances have been made between family businesses, entities and the beneficiaries, most of the advances being made as loans rather than capital distributions.

Although the financial statements and tax returns had been well prepared over the years, the details and supporting documentation for many of the journal entries have been lost.  This created disparity between the beneficiaries, which if allowed to increase with interest charges and costs, would inevitably cause family strife. 

My brief was to review the trust transactions over the last 20 years or so to determine the extent of any disparity.  To complete my findings, I applied three different methodologies and by applying and reporting on different options and outcomes, my findings enabled the beneficiaries and trustees to come to a rational consensus and agreement. This helped the family to avoid a dispute that would have been detrimental not only from a financial perspective, but would have also put great strain on family relationships.

This assignment required the use of forensic skills and experience, and the application of some lateral thinking about how best to report the findings to make sure they were seen to be fair and reasonable to all beneficiaries.

If you’d like to know more about the Trusts Bill and what the implications of these are you can email Shaun at shaun@arcadianconsulting.co.nz.

,

Comments are closed.