Does The New Trust Act Change Whether I Should Have a Trust? - Knowledge Sharing Series
Does the New Trust Act Change Whether I Should Have a Trust?
After many years the Trust Act has been updated. This has changed the thinking of many people that have Trust’s and/or are thinking about forming Trusts. This blog is here to work through some of the main changes and some of the many misconceptions we have encountered.
Every time a new Act is made in an area there is uncertainty while case law settles down. We expect there to be a period of years of case law that will impact the new Trust Act in it’s interpretation.
Under the old Act it was far too common to have to go to Court to work out Trustee roles and responsibilities for each factual situation. Happily, much of this new Act spells out the key issues that required going to Court around Trusts in the first place.
The new Act is remarkably readable and understandable to the non-legal trained eye, and that is considerably more impactful that you might think. Legislation written in plain English allows people to understand exactly what they are doing without needing a judge to make an interpretation of some legal phrasing.
There are some specific areas where the new rules are causing concern, and I’ll discuss those in a moment.
First of all though we want to let you know that we think the reasons for having a Trust haven’t changed. A Trust still offers all of the asset protection benefits it did previously. If your unsure on if you should have a Trust or the benefits of having one feel free to check out our blog on ‘Do i need a Trust?”.
Lets look at the main changes that the new Trust Act is putting in place:
1. The Trust has a duty to tell beneficiaries about their role in the Trust, specifically that they are beneficiaries and that they now have the right to ask for certain information regarding the Trust. For some that has not changed much. By the time a beneficiary knows where to post you a Christmas card www.homes.co.nz gives a pretty good idea of your overall wealth.
2. The duties of Trustees are clearly defined. There are now some trustee responsibilities that always apply. There are others that can be amended or omitted, but people involved in advising on Trusts need to clearly note when this is occurring.
3. The Trustees cannot have an indemnity from the Trust if they have been dishonest, grossly negligent, or demonstrated wilful misconduct. That means trustees may have to pay for costs that arise from such actions themselves.
4. There are some changes to trustee retirement, making it easier to remove trustees who have lost their mental competence, and formalizing how a trustee may retire.
There are other changes we have not covered. If we covered all the changes you’d fall asleep and never read another of our blogs. Instead we urge you to speak with your professionals to understand exactly how the new Trust Act affects your current Trust or your interest in forming one. If you don’t have professionals on board that understand or specialize in this area please feel free to contact us.
Lets look at some common misconceptions:
“The benefits of having a Trust are gone”.
We fundamentally disagree with this as a premise. The main purpose of a Trust is to be an asset protection tool, and in our eyes that hasn’t changed with the introduction of the New Trust Act.
“The running costs of a Trust will go up so much that it won’t be economic to have one”
This is an interesting one because yes, in fact running costs will increase with the introduction of the new Trust Act, however the benefits of having a Trust still heavily outweigh the costs. The running costs of Trust’s could go up ten fold and we would still view it as reasonable. The value that the ability to keep your home and investments through financial hardship is invaluable. If your thinking of the running costs of your Trust as an expense rather than an investment please feel free to set up a time to come and talk your situation through with us.
“There is no point in having a Trust if i have to tell the beneficiaries that they are beneficiaries and tell them what the Trust owns etc”
We never believed in using Trust’s as a secretive asset depository. With the publicly available information these days it would be so easy for a beneficiary to determine much of the information anyway. For that reason we would say that if this change turned you off of a Trust then you probably didn’t understand a Trust’s main benefits.
If you have an existing trust and are not sure if you should keep it going, or if you want to know how your Trust holds up against the new Act please contact us today!