It is 18 months since the new Trusts Act 2019 came into force (while enacted in July 2019, it didn’t come into force until January 2021).
Peter and Jane hadn’t done anything about their trust when the law changed. It was a simple, uncomplicated trust, just owning their family home and sometimes they even wondered why they had it. However, Jane had recently been offered a shareholding and directorship in the company she worked for. The other two shareholders had their shares in trusts, so Jane and Peter thought they better go and see their lawyer to get some advice around their trust. Jane’s work colleague suggested that they get specialist advice as the area of trust law was more complex now than ever.
Jane and Peter took that advice and went to see a specialist trust lawyer who reviewed their existing trust and made some recommendations to make the trust more robust and to reflect the new law. She thought that due to the nature of Jane’s business, there was no real need to have a second trust. But there were quite a few changes that would need to be made to the existing trust. Fortunately, the lawyer told them there was a power within their trust deed to vary the trust deed. She said that wasn’t always the case.
Some of the recommendations were around the beneficiaries of the trust. Peter and Jane’s trust had been set up before they had children and their parents, nieces and nephews were beneficiaries of the trust. There were two things that had to change here. Peter and Jane had to update their memorandum of wishes to provide for what they wanted to happen to the trust assets if they both died. Presently there was no instruction at all as to how their own children would benefit. Secondly, they really wanted to remove their nieces and nephews as beneficiaries. The lawyer explained that under the new Trusts Act, beneficiaries over the age of 18 could ask for financial information relating to the trust. Peter and Jane had never intended that their nieces and nephews would receive anything from the trust once they had their own children. Knowing they currently had a right to know about the financial position of the trust and potentially make demands if they realised they were beneficiaries of the trust, highlighted to them how remiss they were in not reviewing their trust deed more regularly.
Peter’s father was a trustee of the trust. While that wasn’t necessarily wrong, the lawyer did explain the greater onus on trustees to comply with the duties and obligations under the new Act. Also, Peter’s father was getting older and there had been a couple of instances when they were concerned about his capacity. The lawyer explained that while the new Act did make removing an incapacitated trustee easier, it was timely to remove him as a trustee with the trust acquiring the shares in the company. Jane and Peter agreed to appoint a company run by their new lawyer as a trustee. That way they knew that all the administration would be looked after and that they would be doing everything they could to ensure that the trust was being run properly.
One of the other major recommendations was to include a clause which in essence meant that the trustees would not be in breach of trust law if they did not diversify the trust’s assets. The lawyer explained that just owning a family home and shares in a closely held company meant that there was a risk in the future that the beneficiaries could sue the trustees for not having adequately invested the trust assets. In order to prevent that, they needed to put a clause in the trust deed which said that the trustees didn’t have to comply with the “prudent person” test.
The other changes were more of an administrative nature, aligning the trust deed with the new Act’s references. Jane and Peter were delighted with the process. They felt confident that the trust was the right vehicle for their assets and were confident that with the changes that had been made, they would have a robust structure for the future.
If it’s been a while since you last reviewed the structure of your trust, now could be the time. Get in touch with Tammy McLeod and the Trusts Team at Davenports Law today.
DAVENPORTS LAW, 331 Rosedale Road, Level 1, Building 2, Albany, T: 09 883 3284, www.davenportslaw.co.nz
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