Changes to the Disclosure of Information to Beneficiaries

Changes to the Disclosure of Information to Beneficiaries

The biggest practical change facing trustees with passing of the Trusts Act 2019 (“the Act”) is the ongoing disclosure to beneficiaries of a Trust.

This always existed in one form or another at common law, but the Act extends this in some unintended ways in which the settlors would not have thought about when a trust was originally put in place.

The Act imposes a duty on all trustees to inform all beneficiaries they are a beneficiary of a trust, regardless of whether they have received a distribution in the past or not. There are some carve outs where a beneficial class is very wide, i.e. all charities in New Zealand, but all other beneficiaries will need to be informed. Some deeds of trust have what we call ‘kitchen sink’ beneficial classes which includes spouses of children and grandchildren, nieces and nephews, uncles and aunts, brothers and sisters etc and the classic definition of “Trusts of which a beneficiary of”. Clearly, the settlor didn’t intend for all beneficiaries to know about the trust when it was formed and there is a great deal of fear that once a beneficiary has knowledge, they will cause problems for the trustees administering the trust.

Once all the beneficiaries have been identified, the trustees will then need to disclose trust information as follows:

• The fact that the person is a beneficiary of the trust

• The name and contact details of the trustees

• The occurrence of and details of changes of trustees

• The right of the beneficiary to request a copy of the terms of the trust or trust information

Beneficiaries can clearly request more information and there is a presumption in the Act that the trustees must provide the information within a reasonable time frame. The trustees need to consider various factors set out in the Act, but if they decide not to disclose information the reasons will have to be compelling. If the decision to not disclose is successfully challenged by beneficiaries, expect costs to be awarded against the trustees and a challenge as to whether they stay as trustees as well.

This is obviously quite a change from how trusts are currently administered with many beneficiaries not knowing they are a beneficiary of a trust. The new Act is concerned with ensuring trustees are doing their job properly and that beneficiaries have sufficient information to enforce the trust. A lot of litigation is expected in this area once the new rules come into force at the end of January 2021. At Covisory we believe that the practical position will be that all beneficiaries are provided with a copy of the deed of trust and any variations as well as a copy of the annual financial statements of the trust.

For the original settlors who set up the trust, one of the primary goals was to support the family in the future but not to the detriment of the beneficiaries not working hard for themselves, i.e. the trust fund baby syndrome! We have noticed that for our clients they are increasingly concerned about spoiling

children who are beneficiaries and have deliberately kept the true wealth of the family from them. The new disclosure rules will potentially cause issues with this type of situation. In our opinion the right for beneficiaries to know about the trust and ensuring beneficiaries do not end up exhibiting entitled behaviour will be a fine balancing act for the Trustees and education for all parties will be very important.

If you have an existing trust and you feel the new rules will cause issues then it will be necessary to review the deed of trust carefully to determine whether any changes can be made to the deed to exclude beneficiaries or vary the deed itself. In our

experience with older deeds this will not be possible leaving the trustees in a situation of disclosing to a wide range of beneficiaries. Decisions will then need to be made as to whether the trust stays in existence going forward.

We are happy to discuss any questions you may have around the new trust laws. Brian Freestone www.covisory.com brian@covisory.com

Marcus Diprose www.covisory.com marcus@covisory.com