Crowe Horwath: Trusts, but Not As We Know Them

The long-awaited proposed legislative changes to trusts are finally here. The Law Commission produced its report in 2013 on the proposals to change trust legislation following a lengthy and detailed review of trusts in New Zealand. It is estimated that there are between 300,000 and 500,000 trusts operating in New Zealand today, and an estimated 15% of private houses are held in a trust.

It has taken from March 2014 (when the Government accepted the recommendation to change the 1956 legislation) until now for the Trusts Bill to emerge. It is now up for comment with submissions closing on 21 December 2016.

Some of the key changes that will affect mum and dad trustees are as follows:

1. The introduction of a codified standard of care which will require a trustee, when exercising a power of administration, to exercise such care and skill as is ‘reasonable in the circumstances’, taking account of any special knowledge or experience that the trustee has. This is to become a general default duty of care.
   
   
2. A separate standard of care in relation to making investments which is to be at a skill level that a prudent person of business would exercise in managing the affairs of others.
   
   
3. To proactively disclose some trust information to beneficiaries, so that at least one beneficiary knows about the trust.

The proposals will change the standard of care to be exercised by trustees and the level/nature of information to be supplied to beneficiaries. It is expected that the Trusts Bill, in its final form, will be introduced into law early next year. This gives anyone that has settled a trust, or is a trustee of a trust, an opportunity to revisit their position, including reflecting on whether a trust is still the right solution.

Although the majority of the matters to be contained within the Trusts Bill are currently common law, the codification of certain matters will place a greater burden on non-professional and professional trustees alike.

Therefore, it is time for those with trusts to consider who the trustees will be going forward, what information will need to be disclosed to beneficiaries and what processes/procedures are now, or need to be put, in place to ensure the trust is operated with the necessary level of care in the future.

If you live in Hawke's Bay and would like to discuss what the proposals might mean for you and/or your trust, please contact your Crowe Horwath adviser.

This blog post is by Crowe Horwath, Australasia’s leading provider of integrated financial advisory and accounting services. Crowe Horwath is a key brand under the Findex umbrella, providing accounting and advisory services to businesses and individuals.