Trusts Act 2019

The Trusts Act 2019 is New Zealand’s main statute for express trusts. Its stated purpose is to restate and reform trust law, set out core principles, provide default administrative rules, create mechanisms to resolve trust disputes, and make trust law more accessible.

For business owners, the practical point is simple: if your shares, land, investment assets or succession arrangements sit inside a trust, the trust is not just a private family arrangement. Trustees have legal duties, record-keeping obligations and decision-making rules that can affect distributions, borrowing, property transactions and governance.

The Act also says that a trust should be administered consistently with its terms and objectives, and in a way that avoids unnecessary cost and complexity. That is useful for SMEs because it supports practical administration, but it does not remove the need to follow the deed and the Act carefully.

The Act applies only to express trusts governed by New Zealand law. It also says some provisions may apply to certain non-express trusts created by or under an enactment, and a court may apply provisions to resulting, constructive or other recognised trusts where necessary or appropriate.

For most SMEs, the main issue is whether there is an intentional trust arrangement. If a settlor has placed property on trust for beneficiaries or a permitted purpose, and trustees hold and manage that property, you are likely dealing with an express trust.

The Act is not an exhaustive code. It is intended to be complemented by common law and equity, except where inconsistent. It also says that if another enactment is inconsistent with the Trusts Act, the other enactment prevails unless the Trusts Act says otherwise. That matters for regulated sectors and special trust structures.

The trust deed still matters a great deal. Some provisions of the Act can be modified or excluded, subject to limits. The deed can also impose additional duties and restrictions on trustees. So the right question is not whether the deed or the Act wins in every case. The right question is how they fit together for this trust.

A major part of the Act is devoted to trustees’ duties and information obligations. It sets out mandatory duties that apply to trustees of all express trusts, including duties to know the trust terms, act in accordance with those terms, act honestly and in good faith, act for the benefit of beneficiaries or to further a permitted purpose, and exercise powers for a proper purpose.

The Act also lists default duties, including a general duty of care, prudent investment, avoiding conflicts, impartiality, not profiting, acting for no reward, and acting unanimously, unless the trust terms validly modify or exclude them. This is highly relevant where trustees are also family members, directors or business operators, because conflicts and informal decision-making are common risk points.

The Act also creates obligations to keep core documents and rules about giving information to beneficiaries. There is a presumption that trustees must notify basic trust information and a presumption that trustees must give information on request, subject to the statutory decision-making process. That means trustees should not assume secrecy is the default position.

The Act requires trustees to keep core documents, deal with document custody where there is more than one trustee, keep documents for the duration of their trusteeship, and pass documents on. These rules are especially important when a trust owns business shares, land or other assets that may need to be sold, refinanced or reviewed by accountants and lenders.

The Act also sets out how trustees are appointed, retire, are removed and replaced. When trustees change, the execution of the appointment, removal or discharge document can divest and vest trust property in the outgoing and incoming trustees, but that is subject to any notification, registration or recording requirements under another Act.

In practical terms, this means a trustee change is not just a minute or family agreement. If the trust owns land, shares or other registrable assets, the transfer steps still need to be completed. Continuing, new and departing trustees all have obligations to assist, and departing trustees must be given documents showing they have been divested of trust property.

The Act recognises that trustees may need help to operate a trust, but it does not let trustees walk away from responsibility. Trustees can appoint others to exercise or perform certain powers or functions, and they must keep those appointments under review and meet the general duty of care when making them.

The Act also allows delegation by power of attorney in specified circumstances, such as absence from New Zealand, temporary inability to be contacted, temporary physical incapability or temporary lack of capacity. The delegation starts when the relevant circumstance occurs and continues only for the shorter of that circumstance or 12 months, with a limited extension mechanism. Notice must generally be given within 5 working days after the delegation commences.

Special trust advisers can also be appointed. They may advise trustees on trust matters, but they are not trustees and do not have trustee powers or duties. Trustees may consult them and are not required to follow their advice. If trustees do follow the advice, the Act limits liability in some circumstances, but not for dishonesty, wilful misconduct or gross negligence.

The Act states that Part 2 includes a maximum duration of most express trusts of 125 years and abolishes the rule against perpetuities. It also includes transitional rules for trusts created before commencement. For older trusts, the duration position may depend on the trust terms and the transitional provisions, so trustees should not assume the same rule applies to every trust.

The Act allows termination of a trust by unanimous consent of beneficiaries in certain circumstances, and variation or resettlement by unanimous consent where the statutory conditions are met. It also gives the court power to approve termination, variation or resettlement on behalf of certain beneficiaries, such as those who lack capacity or may acquire interests in the future, and the court must consider specified factors.

For disputes, the Act gives the court review powers over a trustee’s act, omission or decision, allows trustees to apply for directions, and includes ADR provisions. This is useful for business families and not-for-profits because it creates structured ways to deal with deadlocks, uncertainty and administration problems before they become more expensive.

If your trust holds company shares, commercial property, a farm, an investment portfolio or other business assets, the Act should shape how you run the trust behind the scenes. Many problems arise not because trustees intend to do the wrong thing, but because they treat the trust as an informal extension of the family or business.

Common trigger points include changing trustees, refinancing property, selling shares, making beneficiary distributions, appointing someone to act while a trustee is overseas, and responding to beneficiary questions. Each of those events can raise issues under the Act about duties, records, notices, powers and proper process.

A good operating approach is to keep the trust deed, trustee resolutions, asset schedules, transfer records and key correspondence together, and to review them before major transactions. If there is any mismatch between who appears to own the asset and who is legally entitled to act for the trust, fix that before signing documents.