The Trusts Act 2019 came into full force and effect today, 30 January 2021 and the Trustee Act 1956 and Perpetuities Act 1964 are repealed. Hello and good bye.
The purpose of the Trusts Act is to make trust law more accessible to trustees and beneficiaries and to strengthen the ability of beneficiaries to hold trustees to account.
Application and guiding principles
The Trusts Act will apply to all discretionary trusts (and any other trusts that meet the definition of an express trust).
The Trusts Act is not a complete code and will co-exist with relevant rules of common law and equity.
Mandatory and default trustee duties
The Trusts Act specifies the core trustee duties that were already part of the law but goes a step further to distinguish between mandatory duties that apply to all trusts and default duties, that apply unless expressly modified or excluded.
Mandatory duties must be performed by the trustee and may not be modified or excluded. The mandatory duties are the duties to:
- know the terms of the trust
- act in accordance with the terms of trust
- act honestly and in good faith
- act for the benefit of beneficiaries or the trust’s purposes, and
- to exercise powers for a proper purpose
Default duties, by contrast, may be modified or excluded by the terms of the trust. Many default duties are already commonly excluded by trust deeds. However, careful consideration of each trust deed is required to establish whether there needs to be a variation of trust to ensure the original purposes are not amended by the Trusts Act such that the terms of trust are no longer what the settlor intended.
The default duties are:
- a duty of general care
- the duty to invest prudently
- the duty not to exercise a power for a trustee’s own benefit
- the duty to consider the exercise of any power
- the duty not to bind or commit trustee to the future exercise of discretion
- the duty to avoid conflict of interest
- the duty of impartiality
- the duty not to profit
- the duty to act for no reward, and
- the duty to act unanimously
The Trusts Act introduces a definition of core trust documents that includes documents setting out the terms of the trust or varying those terms, records of the trust property appropriate to the value and complexity of that property, records of trustee decisions, contracts, accounting and financial statements, appointment, removal and discharge documents, letters of wishes by the settlor, and other documents necessary for the administration of the trust.
Each trustee must hold at least a copy of the terms of the trust and any variation to those terms and at least one trustee must hold all of the core documents.
Disclosure of information
The Trusts Act creates a presumption that a trustee must make “basic trust information” available to every beneficiary and “trust information” available to beneficiaries who request it. However, before providing basic information or trust information, trustees must consider a range of factors. The factors are:
- the nature of the interests in the Trust held by the beneficiary and the other beneficiaries of the Trust, including the degree and extent of the beneficiary’s interest in the Trust and the likelihood of the beneficiary receiving Trust property in the future,
- whether the information is subject to personal or commercial confidentiality,
- the expectations and intentions of the settlor at the time of the creation of the Trust (if known) as to whether the beneficiaries as a whole and the beneficiary in particular would be given information,
- the age and circumstances of the beneficiary,
- the age and circumstances of the other beneficiaries of the Trust,
- the effect on the beneficiary of giving the information,
- the effect on the Trustees, other beneficiaries of the Trust, and third parties of giving the information,
- in the case of a Family Trust, the effect of giving the information on:
- relationships within the family,
- the relationship between the Trustees and some or all of the beneficiaries to the detriment of the beneficiaries as a whole,
- in a Trust that has a large number of beneficiaries or unascertainable beneficiaries, the practicality of giving information to all beneficiaries or all members of a class of beneficiaries,
- the practicality of imposing restrictions and other safeguards on the use of the information (for example, by way of an undertaking, or restricting who may inspect the documents),
- the practicality of giving some or all of the information to the beneficiary in redacted form,
- if a beneficiary has requested information, the nature and context of the request,
- any other factor that the Trustee reasonably considers is relevant to determining whether the presumption applies.
Trustees’ information obligations are continuing.
Exemption and indemnity clauses
The Trusts Act now provides that trustees cannot be indemnified against gross negligence.
Abolition of the rule against perpetuities
The rule against perpetuities is abolished (and the Perpetuities Act repealed) and there is now a maximum duration of 125 years.
The Trusts Act introduces new adviser obligations that apply where default duties are modified and if there are any restrictions on exemption and indemnity clauses.
Keep calm and carry on
Any trust already in existence should be reviewed against the Trusts Act. However, the Trusts Act does introduce changes, these must be considered by reference to why any trust was settled and if the Trust’s purposes are still valid.