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Disclosure, General, Trusts Bill

Revisions to the Trusts Bill

The Justice Select Committee has reported back to Parliament (following two time extensions). The recommended amendments to the Bill are largely minor in effect, dealing with definitions or clarification of proposed provisions, although there are adjustments to maximum duration periods for resettlements and the addition of a “guiding principle” for trust duties.

Key points are:

  1. Transition period – Still 18 months from Royal Assent before an Act would come into force.
  2. Definition of express trust: now “intentionally established” by a settlor (instead of “deliberately set up”).
  3. The term “default duties” has been amended – now duties that may be modified or excluded (subject to exceptions) (per s 5(3A), see Schedule 2; see also s 26A – the duties are listed in ss 27 to 36).
  4. “power of appointment” is now a defined term referring to the power to appoint or remove a person as a beneficiary.  There are other provisions in the Bill that relate to the power to appoint trustees.  However, these are not defined terms.
  5. Creation of an express trust – amended to include not only identifying beneficiaries but also classes of beneficiaries.
  6. Maximum duration – no change from 125 years (or shorter if specified). No new categories of indefinite duration trusts have been expressly added. Retirement scheme trusts have been removed from list of trusts that may continue indefinitely, the definition of which has been brought into line with the Income Tax Act 2007 or another enactment, or else a trust that may continue indefinitely under common law or equity. (This means that certain types of trust that lobbied for inclusion as indefinite duration will need to get specific political/legislative support to be able to do so).
  7. The maximum duration is now expressly applied to re-settlements (s 16A).
  8. The revised Bill includes a “guiding principle” in performing trust duties:  “a trustee must have regard to the context and objectives of the trust”.
  9. One of the key “mandatory duties” has been slightly amended so that the duty to hold or deal with trust property for the benefit of the beneficiaries must now be “in accordance with the terms of the trust”.
  10. Where a court is deciding whether a trustee has been grossly negligent, the court must consider whether the trustee’s conduct was so unreasonable that no reasonable trustee in that trustee’s position would have considered the conduct in accordance with the role and duties of a trustee. A list of 8 factors to be taken into consideration is provided, which includes the “circumstances, nature and seriousness of the breach”; the trustee’s knowledge and intentions; relevant skills and knowledge; any purpose for which the trustee was appointed; and whether the trustee is remunerated.
  11. Information to be disclosed and presumptions in favour of disclosure amended only in very minor ways. Trustees may require beneficiaries to pay some or all of the cost of providing information before giving the information to the beneficiary.
  12. The only amendments to trustee powers relate to the adjusted definition of powers of appointment, now limited to appointment or removal of beneficiaries.
  13. Adjustments to the requirement to give notice of delegation of trustee powers and functions under a power of attorney (s 67).
  14. Tightening of rules concerning application of insurance money for loss or damage of trust property.
  15. Reworking of the protections for purchasers and mortgagees of property dealing with trustees.
  16. Imposing conditions on when trustees might be indemnified with the agreement of beneficiaries. These include a requirement that the consent is unanimous, a requirement that beneficiaries are legally advised before consenting in the event of gross negligence and court approval when beneficiaries lack capacity.
  17. Amendment of how a trustee may reject appointment.
  18. Revision of provisions for removal of a trustee (ss 97, 97A, 97B).
  19. s 108 now includes a provision to protect any lien to which a trustee may be entitled.
  20. Deletion of ss 133 to 135 regarding vesting order on sale of land or judgment for specific performance.
  21. Strengthening of terms around alternative dispute resolution (ADR). Note that the definition of “internal matter” has been widened to include a dispute between trustees.

Key points to note are the definition of express trust, the curiously narrow definition of “power of appointment”, extension of requirements for an express trust to include allowance for classes of beneficiary, no material changes to maximum duration, no material changes to the Bill’s controversial disclosure requirements, very limited adjustments to provisions concerning trustees’ powers and functions, tightened rules around beneficiary consent for indemnification, amendments to provisions for trustee removal, protection for trustees’ liens and changes to provisions concerning Alternative Dispute Resolution.

The Bill will now come before Parliament for a 2nd reading. It remains to be seen whether any lobbying or advice to the Government will lead to further amendments before the Bill receives its 3rd reading and goes to the Governor General for Royal Assent. If this occurs before the end of this year the new Act would come into force at some time during the second quarter of 2020.

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