The Trusts Act 2019 provides that before the creation of the trust, the adviser, must take reasonable steps to ensure that:
- the initial settlor is aware of the meaning and effect of the modification or exclusion of any default duties, and
- the settlor is aware of the meaning and effect of any liability exclusion or indemnity clauses in the terms of the trust.
To put adviser obligations into context it is important to consider the genesis of the default and mandatory duties and the legislated liability and exclusion requirements. As set out at 5.4 of the Law Commission Report: Review of the Law of Trusts (the Review of the Law of Trusts):
Trustees’ duties are of central importance in a trust and a large number of New Zealanders, including many without legal training, are trustees. We understand that many trustees do not fully understand their obligations. It is worthwhile to include each duty in a simplified form in legislation. This would provide a clear and accessible base from which trustees can gain an understanding of their duties. It would have educative value and may encourage improved standards among trustees because of the greater prominence given to the duties in the law. It could be argued that the duties are sufficiently clear in the case law and that there would be little practical benefit in expressing the duties in a statute. However, our view is that the significance of the duties to the trust relationship warrants them being given greater attention by being stated in legislation. Importantly, given the recognition that a large number of trustees do not have legal training (and the observation that the same must necessarily apply to settlors) it is incumbent on advisers to not just advise where there has been a modification or amendment but to be able to advise the position with respect to any one trust with and without the proposed modification.
 R 130 Law Commission Report: Review of the Law of Trusts – A Trusts Act for New Zealand
The challenge for advisers is identifying what is reasonable in light of the widely differing skill set of each settlor and how the adviser obligations should be met.
Perhaps surprisingly, the consequences of failure are not specified with respect to modification of default duties.
If an adviser is named as a trustee or subsequently becomes a trustee, if the adviser obligation is not met regarding a liability exclusion or indemnity clause that clause has no effect with respect to that adviser. However, in R130 Review of the Law of Trusts, the Law Commission set out its views as follows:
If you advise on trusts this should be of concern to you and you may find the Trust Series 2021 Webinar – The Trusts Act 2019 – Adviser Obligations helpful. This webinar, which includes a question and answer session will be delivered live on 22 September 2021 and will be available on demand following.
Also see the cost of being wrong.