The Team at Prudentia Law has reviewed the Law Commission’s two latest publications relating to its review of trusts in New Zealand, and we strongly believe that the times of lackadaisical trust management are likely to soon be over.
We have highlighted below what we believe the main focuses of the review may trigger on the trust landscape. It is important for you to consider these and the impact they could have on your structure.
The key issues likely to come from the Law Commission’s review are:
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Income Tax Returns required where any income is earned by the trust, including interest on bank deposits.
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Some form of centralised registration process for trusts, to open up what has long been a private entity for people.
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Possible new mechanism for creditors to “look through” a trust to attack assets.
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Beneficiaries rights may be strengthened to ensure trustees are upholding their fiduciary duties.
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Trustees may be required to give greater consideration to discretionary beneficiaries when dealing with trust assets.
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Inland Revenue powers over trusts may be increased.
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Reduced protection where the trust is effectively controlled by one person, with no independent influence.
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Possible new mechanisms for creditors to pursue directors of corporate trustees.
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Relationship Property laws may be tightened to provide separated spouses greater rights over trust assets.
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The flexibility with trusts as to changes in beneficiaries, variations to the trust deed, and or alterations to trust powers may be reduced.
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Trusts may become more regulated, with some form of Government review panel to ensure trustees are managing trust appropriately.
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Legislation and the courts are likely to take a more stringent view on the three certainties required with all trusts – intention to create a trust, subject matter of the trust, and the identification of beneficiaries.
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A process may be introduced as part of the regulatory system, to ensure that lay-person trustees are educated as to their appropriate duties.
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The power of the Courts may be increased to allow greater ability to vary trusts (especially in the creditor’s remedies and relationship property areas).
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Specific rules may be put in place to ensure trustees are insuring trust assets appropriately.
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Legislation may be introduced to specify what purposes trusts shouldn’t be able to be used for.
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Legislation may be introduced to increase the possibilities for trustee liability in respect of their actions as trustees.
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Rules around creditors, estranged spouses and the Official Assignee being able to look through the protection of a trust may be enhanced to allow such claims within longer time periods.
