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Trustees – Information Retention and Disclosure

Home Insights Trustees – Information Retention and Disclosure

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Contributed by: Nathaniel Walker and Fayez Shahbaz

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Published on: August 21, 2020


Trusts Reform Series: Part 1

Improving the management of New Zealand trusts

Many of New Zealand's estimated 300,000 to 500,000 trusts are, in short, poorly and informally managed. Many trustees do not know or comply with their obligations, adopting a "sign when asked" approach that has resulted in liability for co-trustees in a number of cases and a broad consensus that trusts need to be better run. 

The trust industry has not stood still in the years leading up to the Trusts Act 2019 (Act), with professional trustees having an increasing and welcome presence in the market. A number of pointless trusts have been wound up. Trusts that are structured so as to be a "trust" in name only (eg with exceptional levels of settlor control) are less prevalent. 

The Act represents the next step in the professionalisation of the role of trustee. The purpose of the Act is to "restate and reform New Zealand trust law". We see parallels with the (judicially lead) development of the role of company directors in the early 2000s. The days of sleeping trustees are gone – by (among other things) setting out clearly in one place the duties and obligations on trustees, it will enable greater supervision of and accountability for trustees. Below we offer some tips for trustees to better run and manage your trust.       

1. Keep records and disclose trust information to beneficiaries

One of the significant changes brought about by the Act – which will apply to all express trusts governed by New Zealand law – is the strengthening of the ability of beneficiaries to hold trustees to account via information disclosure. 

Under the Act, trustees must keep trust documentation and disclose "trust information" to beneficiaries. This new disclosure obligation is to ensure that beneficiaries have sufficient information to enable the terms of the trust and trustees' duties to be enforced. This obligation cannot be excluded by the trust deed.  

2. Keep "core trust documents"

Trustees must keep, so far as is reasonable, "core trust documents" including:

  • the trust deed;
  • variations;
  • records of the trust property;
  • records of trustee decisions;
  • contracts;
  • accounting records and financial statements;
  • letters of wishes;
  • documents relating to the appointment of trustees; and
  • any other documents necessary for the administration of the trust. 

Notably, the period for which documents must be held is the duration of the trust, not any shorter period as required by tax law. 

If there is more than one trustee, then each trustee must hold the trust deed (and any other document that contains terms of the trust) and any variations made to the trust. Each trustee must also be satisfied that at least one trustee holds the other documents referred to above and that those documents will be made available on request.

3. Make "basic trust information" and "trust information" available

The Act creates a presumption that a trustee must make:

  • "basic trust information" available to every beneficiary or representative of the beneficiary; and
  • "trust information" available within a reasonable time to every beneficiary or representative of the beneficiary who request it.

Basic trust information includes the fact that a person is a beneficiary of the trust, the name and contact details of the trustee, the details about any change to the trusteeship, and the fact that a beneficiary may request a copy of the terms of the trust or trust information.

The trustee has an active duty to consider at "reasonable intervals" whether the trustee should make basic trust information available to the beneficiaries or their representatives.

Trust information is defined broadly and includes any information regarding the terms, administration or property of the trust and any information that is reasonably necessary for the beneficiary to have to enforce the trust. It does not include reasons for trustees' decisions (as is the common law position). This also means that trustees' reasons for deciding not to disclose information would not need to be disclosed.

Before providing basic trust information and/or trust information in response to a request, trustees must consider a range of factors set out in s 53 of the Act. If the trustee reasonably considers (after taking into account those factors) that basic trust information should be withheld and/or requested trust information should not be disclosed, the trustee may withhold that information. There will be a difficult balance to be struck here for trustees, and litigation is expected on these provisions in the early life of the Act.

4. Actively manage and administer the trust

The new record keeping and information disclosure obligations will require trustees to be more active in their management and administration of their trusts.

In anticipation of the Act coming into force, trustees should, among other things consider:

  • re-familiarising themselves with their trust deeds, as well as trustee duties and obligations more broadly;
  • engaging with the settlor to understand their expectations and wishes as to disclosure; 
  • taking stock of what core trust documents they hold and if there are any gaps, take steps to fill those gaps;
  • what information their beneficiaries currently have and if their beneficiaries do not have basic trust information, begin thinking about whether or not to make such information available to the beneficiaries – there is no need to wait for the Act to come into force; and
  • carefully whether any amendments to the classes of beneficiaries could and should be made in the coming months.

These new rules will allow beneficiaries to hold trustees to account in a way they previously could not, as part of the ongoing professionalisation of the role of trustee. Although there will inevitably be litigation about the effect of these provisions (particularly via the new broad "review" power in s 126 of the Act – more on that in a later article), we remain of the firm view that these rules will lead to better management of trusts more generally.        

This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.

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