Contents

Introduction

General approach to reforms

12We have aimed to present sensible practical proposals for trust law, focusing on private express trusts. For the most part we have not tailored the proposals to particular types of other trusts, such as the various types of trust established by statute, which do rely on some of the provisions of the Trustee Act and trust law generally. We invite comment from those involved with these trusts on whether they see the proposals that are relevant in their contexts operating successfully.

13Below we set out some key features and themes of our proposals which reflect the aim and objectives of the review.

A new trusts statute

14We propose that there should be new legislation to replace the Trustee Act. The reforms being considered in this review cover much of the content of the existing Act. The language and structure of the Trustee Act are in need of modernisation. Every section of the Trustee Act would benefit from being redrafted in intelligible language taking into account modern practices and conventions. The best way to achieve a coherent, useful statute is to introduce a brand new Act.

15In our view, it would be beneficial to make the new Act a Trusts Act, rather than a Trustee Act. The current Act focuses on trustees primarily. We consider that the legislation should focus more broadly on the trust relationship. We are proposing broadening the subject matter covered by legislation so that it would include general trust concepts and relationships. We intend that new legislation would give a fuller picture of what trust law addresses.

Not a complete codification

16While the subject matter covered will be broader than that covered by the Trustee Act, it is not possible to go as far as codifying all trust law. This is because of trust law’s complexity, the nuances that apply to different types of trusts, and the desire for continued development of trust law by the courts. For instance, the proposals regarding trustees’ duties are to have provisions that summarise the general principles of the existing case law. We do not propose specific rules about how the duties apply in different circumstances. The main area of trust law not covered by our proposals is the remedies that apply if there is a breach of trust. We have chosen not to explore this as equitable remedies are a broad area of law that covers more than trusts.

Inclusion of core trust principles

17We propose that the new Act should restate some existing case law trust principles in general terms for the purposes of informing and educating people about trust law and clarifying trust law. Setting out those principles would guide the many trustees who are not trust professionals. It would meet the objectives of introducing a more useful statute that fits the New Zealand context of large numbers of family trusts. The proposed new Act would aim to make core trust law clear and accessible. In some cases this will mean the inclusion of subject matter in the new legislation that it could be considered unusual to cover in statute, but that is so central to the trust relationship that we believe it needs to be stated in a way that is readily understandable. Some of the proposals for principles of core trust law in the new legislation, such as those relating to the duties of trustees, are for provisions that summarise and express the case law without overriding it.

Addressing trust law rather than other areas of law

18The proposals for a new Trusts Act address only core trust law. In our view the new Act is not the right place to address problems that arise solely at the point of the interaction of trusts with other policy areas. These matters are better dealt with in the individual policy areas so that different policy values can be taken into account and different solutions taken depending on the nature of the policy area and the impact of trusts on that area. The scope of this review means that we have generally not been able to address trust-related problems in other statutes. Only where the interaction of trust law and another area of law is creating problems with fundamental trust law do we suggest that reform measures may be warranted or there may be a need for a separate review of the other area of law.

Mandatory and default provisions

19Like the Trustee Act, we propose that the new legislation would include both mandatory and default provisions. Some sections would apply in every trust, while others would be capable of being overridden by individual trust deeds. Where a provision is capable of being overridden, it would set out the default position that applies in the absence of any statements on the issue in a trust deed. The new legislation should clearly identify which provisions are mandatory and which are default so that there is no room for confusion.

20We propose that new legislation would go further than the current Act in making mandatory requirements clear. It is essential that all those using and interacting with trusts recognise that the existence of a trust means certain duties and requirements will always need to be met.

Application to existing and new trusts

21Generally the provisions of the proposed new Act would apply to all express trusts, including existing trusts. Most of the proposals update existing provisions or restate existing judge-made law so there would be no real change to the legal position of most trusts. All trusts can benefit from the improved procedures we propose. Where there are proposals that would have the effect of materially altering the terms of a trust in a way that is detrimental, these would only apply to trusts established after the commencement of the new Act.

Enhanced trustee accountability

22Our proposals take the approach of enhancing the accountability of trustees. In a trust relationship it is the beneficiaries that are owed the duties and have the ability to hold trustees to account. This is the primary way of ensuring that a trust is enforced. However, it has not always been clear what obligations trustees owe, whether trustees can avoid liability and how beneficiaries can go about enforcing their rights. Our proposals to set out trustees’ duties and the law relating to clauses exempting trustees from liability in legislation will make the relationship clearer. We propose that beneficiaries should have a broader ability to apply to the court to have trustee decisions reviewed.

Enabling trustees

23The proposed approach taken to trustee powers, including the investment powers, is to empower trustees broadly so that they have the authority to do all that they need to do as the default position if the terms of trust do not set the powers in another way. This is a change from the current Act which limits some powers with protective restrictions and conditions as the default position. The emphasis should be on the trustees’ duties and the objects of the particular trust to control a trustee’s actions rather than on the limitations to trustees’ powers.

Streamlined law and processes to minimise court involvement

24Where possible we make proposals that provide sufficient clarity and direction in the law so that there is less need for applications to the court to make a decision or formalise a process. We want the court’s supervisory role in relation to trusts to be concentrated on disputes or situations where the interests of beneficiaries who cannot protect their own interests are at risk. Where the court’s supervision and direction is not necessary, trustees and beneficiaries should be able to avoid the cost, time and effort of a court application.

25We propose that new legislation expand the role of the Public Trust. We suggest that the Public Trust can provide independent supervision and advice to trustees in certain situations. The Public Trust can have an official role to formalise a decision or process, where there is agreement among the parties involved. In some cases this would avoid the need for an application to be made to the court, reducing cost and delay for those involved. The Public Trust would be able to charge for its services.

Minimal new regulatory requirements and structures

26The proposals do not introduce a new regulatory or supervisory body for either trustees or those providing trustee services. We do not propose that more information about individual trusts be submitted to a public body than is the case currently. This approach is based on the desire to avoid introducing unnecessary costs where a significant problem has not been identified. It also reflects the traditional private nature of trusts.