The New Trusts Act 2019: What Should Trustees Do?
Anderson Creagh Lai has formed a specialist team to advise clients on the legal and practical implications of the new Trust Act 2019 which comes into effect on 30 January 2021.
The trust team can give guidance to clients about planning for and responding to the challenges posed by the new legislation.
Historically trusts have been established for asset protection, estate planning and tax reasons. In many cases a trust will hold an individual’s largest asset- for example the family home. It is therefore important that a trust deed is updated to reflect the change in the law and that trustees come up to speed with the changes.
At the same time, it is has become increasingly apparent that many older deeds contain provisions which are unduly restrictive in that they limit the powers of trustees, limit the class of beneficiaries and fail to adequately address issues such as what happens if a couple separate. A trust deed may also include provisions which increase its susceptibility to challenge by creditors of a settlor or beneficiary. A review of the deed may provide clients with the opportunity to address some of these issues.
Over the last few months Anderson Creagh Lai has heard of cases where trustees have resigned as a result of their concern about the challenges posed by the new legislation. A growing number of legal and accounting advisors have also indicated that they are not prepared to act as independent trustees. While undoubtedly it is appropriate for trustees to carefully consider their position before committing to it long-term because the role does require time and effort, we firmly believe that trustees can discharge their responsibilities while at the same time minimise any legal exposure to themselves.
TO WHOM DOES A TRUSTEE HAVE TO DISCLOSE INFORMATION ABOUT THE TRUST?
Under the new legislation, a trustee will be required to make “basic trust information” available to every beneficiary. However, before providing the information, trustees must consider a range of factors and if the trustee reasonably considers that the information should not be disclosed, then it may withhold the information.
‘Basic trust information’ includes the fact that a person is a beneficiary, the name and contact details of the trustees, details about the appointment, retirement and removal of the trustees, and the fact that a beneficiary may request a copy of the terms of the trust or ‘trust information’. ‘Trust information’ is information that is reasonably necessary for the beneficiary to have to enable the trust to be enforced.
WHO IS A BENEFICIARY?
The new legislation includes a definition of “beneficiary” which is substantially broader than is generally found in trust deeds. Under the Act, beneficiaries will include not just the discretionary beneficiaries identified in the trust deed, a person is also deemed a beneficiary if he or she “has received” or “will or may receive” a benefit under a trust. This gives rise to the possibility that individuals could inadvertently be deemed beneficiaries by the conduct of trustees with the consequence that such individuals would, potentially, have rights to information about the trust as described above as well as other rights in respect of the trust. It will become important that measures are put in place to ensure the beneficiaries of any trust are kept to a defined group.
WHAT ARE THE DUTIES OF A TRUSTEE?
The new legislation introduces the concept of “mandatory” duties which must be performed by a trustee and which may not be modified or excluded by the terms of the trust deed. The mandatory duties require that trustees must:
- know the terms of the trust;
- act in accordance with the terms of the trust;
- act honestly and in good faith;
- hold or deal with property for the benefit of the beneficiaries (or in the case of a charity to further the charitable purposes; and
- exercise the trustee’s powers for a proper purpose.
The new legislation also introduces the concept of “default” duties which may be modified or excluded in the trust deed. They include duties to exercise reasonable skill and care in administering the trust, to invest prudently and to act impartially, unanimously, without reward and not to profit.
Trustees should consider whether they want to vary the trust deed to exclude or modify any of the default duties. For example, the requirement for trustees to invest prudently generally requires trustees to diversify the trust investments. However, if it was always envisaged by the settlor that the trustees would acquire a property as a residence for the use and enjoyment of beneficiaries the trust deed should state that the trustees are not required to diversify the trust investments. In many cases our advice will be to expressly exclude most if not all of the default duties.
WHEN DOES THE TRUST END?
It has been the case that a trust has not been permitted to continue to exist for a period exceeding 80 years. Possibly this won’t be a top-of-mind issue for many clients who are considering the establishment of a new trust, but the new legislation extends that period to 125 years. It may be possible to vary existing trust deeds to take advantage of this longer period.
CAN TRUSTEES APPOINT ADVISORS?
Trustees will also be able to appoint a “special trust advisor” whose role is to advise the trustee. For example, trustees can obtain advice from different investment advisors before investing trust funds. If such an advisor has been relied on by trustees when making a decision regarding trust assets, the trustees may be in a better position to respond to allegations of a lack of proper prudence.
WHAT INFORMATION ARE TRUSTEES REQUIRED TO KEEP?
The record keeping obligations of trustees have now been formalised. Trustees will be required to keep core trust documents and other documents such as records of the trust property appropriate to the value and complexity of the property, trustee minutes, contracts and accounting statements.
HOW CAN TRUSTEES PROTECT THEMSELVES FROM LIABILITY?
Trustees should ensure that the trust deed protects the trustee from personal liability to the maximum extent. If the trustee is a company, it is important that this protection be extended to the directors of that company. The new legislation, however, makes it clear that trust deeds must not limit a trustee’s liability or provide an indemnity for dishonesty, wilful misconduct or gross negligence.
HOW WE CAN HELP
Our experienced trust team can help you by:
- Reviewing the terms of your existing trust and where appropriate making changes to the trust deed;
- Compiling various documents, minutes and records;
- Preparing a simple information pack for beneficiaries;
- Working with other advisors such as your accountants and investment advisors; and
- Meeting with you annually to keep you abreast of developments and to address any issues that may have arisen.
ANDERSON CREAGH LAI LIMITED
Article written by Grant Sidnam and Paul Chambers
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