3.70The duty to account includes an obligation to make information available to beneficiaries. While trust deeds can never dispense with the requirement to account to beneficiaries and the need to provide some information to some beneficiaries, what is required in each trust is dependent on the trust’s circumstances. Because this is an area where trustees are often required to make difficult decisions and the law can be unclear, it seems to be one where provisions that give further guidance to trustees are warranted. This provision would apply to private trusts only.
3.72There appears to be general satisfaction with the principle in Schmidt v Rosewood and no desire to change this. However, there is concern that from a practical perspective it is now difficult for trustees to determine what their obligation to provide beneficiaries with information entails, because the position relies on a discretion of the court. It appears that trustees are commonly required to make decisions about providing information and could do with greater clarification and guidance. The NZLS commented that the law is only partially satisfactory because there is uncertainty. It also pointed to several problems in practice: a lack of awareness among trustees of what the disclosure obligations are; inconsistent disclosure practices; uncertainty about the extent to which a settlor can exclude disclosure obligations; and uncertainty about what age beneficiaries must be before information must be disclosed to them. The TCA and Taylor Grant Tesiram found the decision in Schmidt to be unhelpful in practice and considered that more practical guidance in legislation would clarify the law and make it more accessible to trustees.
3.73The options considered are:
3.74Option (c) was the preferred option for most submitters. We agree that the combination of a principled discretion with some guidance seemed to the best option. Option (b) would be too prescriptive, while option (a) would not make it any easier for trustees to make decisions. The discretionary approach from Schmidt v Rosewood seems to be the best method of addressing different types of trusts flexibly. Submitters, such as the NZLS, pointed out that some information could always or nearly always be available to certain beneficiaries, but other information was more sensitive. The need for a distinction between different classes of beneficiaries was also highlighted.
3.75The variation to option (c), suggested by the NZLS, has the added benefit of providing clear direction that certain information needs to be provided to “qualifying beneficiaries”, which would make the law clearer and more straightforward to apply in many cases. Those in the “qualifying beneficiaries” category are those who under the Schmidt v Rosewood principle would be effectively guaranteed of being able to receive the information that they are beneficiaries, contact details for trustees, and their right to receive the trust deed. Unlike the rest of this proposal which confirms the current law, the provisions relating to qualifying beneficiaries could not apply retrospectively, although they may be useful guidance for trustees of existing trusts.
3.76We realise that this may require a change in the practice of some trustees and that the notification could increase costs. The principles of trust law require that some information is given to these beneficiaries. If beneficiaries are not to be notified it would need to be justified by their not having a sufficiently close or likely interest in the trust property or that it was unreasonable to inform them, for instance because the class of beneficiaries is large. Trustees are unlikely to ever be justified in not providing information to a beneficiary who has a vested or contingent interest. By limiting the obligation to notify to only beneficiaries who meet the category of “qualifying beneficiaries”, who therefore have a proximate and likely interest, this requirement is not unreasonable.
3.77It may be necessary to exclude some trusts from the application of this provision. For instance, the Office of the Māori Trustee and Māori Land Court suggest that Māori land trusts would need to be excluded, because of the large numbers of beneficiaries and the need for sufficient flexibility to consider these trusts.
3.78The intention of including the provision requiring some information to be given to qualifying beneficiaries is to create a general rule that reduces trustee discretion and increases certainty in whether beneficiaries will receive information, making the law clearer and simpler for both trustees and beneficiaries. A weakness with this proposal is that it still relies on the trustee’s judgement about who is a qualifying beneficiary. The trustee decides if he or she reasonably considers that a beneficiary has real prospects of receiving trust property. This could make it hard for beneficiaries to know whether they are qualifying beneficiaries or not, and therefore may impact on their ability to truly enforce the trust. We cannot see a way around this, but are open to feedback on how this proposal can be improved.
3.79The NZLS’s proposal of allowing trust deeds to limit the trustee’s duty to give information to particular beneficiaries has not been followed. This would in many cases be a “flag” to litigate. It seems incorrect in principle to prevent certain beneficiaries from accessing the most basic information that they are a beneficiary and are entitled to request a copy of the deed, accounts and other information. Any later decision on whether to release or withhold information would be subject to the trustee’s discretion to withhold based on factors listed in the legislation.
3.80An alternative approach to including a default provision detailing the duty to inform beneficiaries that has been suggested is to include the provision as guidance in a best practice code instead. This is not our preferred approach as the law would be clearer with the provision in legislation and the proposed provision provides sufficient flexibility to trustees and the courts.
3.81Having a statutory role for the Public Trust was not something that was raised in the Issues Papers but it has emerged as a proposal to act as a lower-level official body that can carry out administrative functions and provide advice. One proposed function for the Public Trust is to provide advice on whether trustees are required to release information to beneficiaries. We would envisage that the Public Trust could provide a trustee with general advice on the information they are required to release as well as advice about specific material which beneficiaries have requested. The legislation would provide that the advice is non-binding but that trustees are protected from liability when relying on it. We consider that beneficiaries should also be able to ask the Public Trust whether trustees are required to release certain material to them. The Public Trust would then ask the trustees for information to help it to provide this advice to the trustees and beneficiaries concerned. A trustee that did not cooperate with the Public Trust would risk a contrary result if beneficiaries take the issue to court.
3.82This option has the advantage of providing low cost, authoritative guidance for trustees from an independent body, who, even with the additional direction in the new legislation, may want such a mechanism. The Public Trust is in a position to exercise judgement based on experience and expertise. Providing the Public Trust with this role could improve trustees’ decision-making regarding the release of information, reduce conflict between trustees and beneficiaries about the release of information, and reduce the need for cases to go to court for a decision on this issue.