News of a new Trusts Bill has been at the forefront of the industry over the last year as the Trustees Act 1956 has not been comprehensively updated over the last 60 years and there are a few issues with the current act, including:

1. the Act doesn’t set out core trust principals, rather these are currently found in common law as trust law has evolved over the years in the courts
2. the Act is not simple to read and doesn’t reflect the modern trust practice, as a result many provisions of the Act are superseded with how trusts are run today

As of now the Justice Committee has examined the Bill and has recommended it be passed with amendments.

This article identifies the proposed key changes to the current Act and is intended to be a practical guide to what is expected to become law shortly.

Key Changes

Trustees’ Duties and Information Obligations

Mandatory and Default Duties of a Trustee

The Bill sets out the mandatory and default duties that are currently in place based on existing common law, there is no real change to the duties a trustee must perform. The Bill will make it easier for trustees to understand and identify the duties they must carry out and duties they may exclude or modify in the trust deed.

As per clauses 22 to 26 the mandatory duties are to:

1. know the terms of the trust
2. act in accordance with the terms of the trust
3. act honestly and in good faith
4. act for the benefit of the beneficiaries or to further permitted purpose of the trust; and
5. exercise power for proper purpose

The default duties are referred to in clauses 27 to 36 which include a duty not to profit or a duty to act for no reward.

Exemption and Indemnity Clauses

Under clauses 37 to 40 the Bill clarify the common law position whereby the trustee can limit or exclude liability where they have acted reasonably on behalf of a trust, however a trust deed cannot exempt or limit a trustees’ liability or indemnify them for dishonest, willful misconduct or gross negligence.

There is likely to be some statutory guidance as to what amounts to gross negligence, however we must note that even an individual, as a lay-man, who act as a trustee or volunteer trustees can be grossly negligent.

Trustee to provide Trust Information to Beneficiaries

The Act is unclear on whether or not beneficiaries have the right to receive trust information and/or documentation. Clause 46 of the Bill provides the importance of beneficiaries having basic trust information as it enables the terms of the trust and the trustees’ duties and obligations to be enforced against the trustees.  

Further clause 47 of the Bill provides that the trustee must make available to every beneficiary or a representative of a beneficiary (after considering various factors as per clause 49) the basic trust information.

Therefore, as per the definition of “basic trust information” in clause 47, all beneficiaries of a trust will need to be advised that:  

1. they are a beneficiary; and
2. provided details about the trustee(s) (and subsequently further information if any trustee(s) is/are appointed, removed or retire); and
3. they have a right to request trust information

The Bill defines “trust information” as any information regarding the terms, administration or property of the trust and any information that is reasonably necessary for the beneficiary to have to enable to trust to be enforced. 

From a trustees’ perspective this could be relatively challenging and complex, especially where the trust deed provides for a broad class of beneficiaries. However, one of the factors under clause 49 a trustee may consider is the practicality with providing information to all beneficiaries where a trust has a large number or unascertainable beneficiaries.

It is also necessary to consider the impact the lack of confidentiality may have and issues it may cause especially in a certain situations where family members are left out as beneficiaries.

Whilst the trustee has certain reasonable discretion, by way of clause 49, to make a decision to not to give basic trust information to a beneficiary or refuse an information request from a beneficiary, it is likely that such decisions will be challenged by beneficiaries in the future.

Efficient Trust Administration

Trustees’ Powers and Indemnities

The Bill specifies general powers in clause 52 which will align the legislation with practices currently carried out, i.e. provide the trustee with “all the powers necessary to manage the trust property including…all the powers of an absolute owner of the property”.

Trustees’ liability

The current Act is unnecessarily complex and unclear in regard to the liability of a trustee when administering a trust. Clause 77 of the Bill provides clarity in that “a trustee is personally liable for an expense or a liability incurred by the trustee when acting as a trustee”, however are entitled to seek a reimbursement from the trust property.

Court Powers and Dispute Resolution

Court Oversight

The Bill provides clarity in terms of the Court’s involvement and modernizes the existing provision in the Act and it aims to simplify trust processes and avoid Court proceedings.

“An example is where a trustee becomes mentally incapacitated and it is necessary for them to be removed as a trustee. At present this would require an application to the Court, at significant cost to the Trust, to obtain an order authorising the trustee’s removal and the transfer of the Trust’s assets to the remaining or new trustees. The Bill [clause 97A] instead permits the removal of trustees [where a trustee loses the capacity to perform the functions of a trustee].”[1]

Whilst the High Court will continue to have jurisdiction over trust matters the Bill extends the jurisdiction to the Family Court which will avoid some matters having to go to the High Court.

Alternative Dispute Resolution (ADR)

The Act doesn’t provide any guidance on ADR, however the Bill specifies that ADR processes can be used to resolve trust disputes and any ADR settlement must be approved by the court. The Bill also clarifies that ADR can be used even where the Trust Deed is silent on the matter.

Rules against Perpetuities

Whilst most trusts do no extend past the current perpetuity period of 80 years under the complex Perpetuities Act 1964 the Bill repeals this act and provides that the maximum duration of a trust is to be 125 years. 

Conclusion

Whilst the Bill is still in draft stages it is likely that the new Trust legislation will provide clarity in regard to core trust principles, ensure efficient trust administration simply the role of the Courts.

It is likely the legislation will have retrospective effect when it is introduced, whereby all trust instruments will be governed by the new statute. The new act will come in to force 18 months after the date on which it receives Royal assent and thus there is a relatively long lead in time to do what is necessary to comply with its requirements.
 

Disclaimer

This article is published for general information purposes only and the legal content in the article is of a general nature and should not be relied upon as legal advice.