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Law Commission Recommends Makeover For New Zealand Trust Law

11/09/13

Hon Sir Grant Hammond KNZM

President

Law Commission

Law Commission Recommends Makeover For New Zealand Trust Law

The Law Commission is recommending a new Act clarifying the legal rights and duties of New Zealanders who use trusts to manage their assets.

If enacted, the new Trusts Act would be relevant to tens of thousands of New Zealanders who use trusts as an alternative way of holding and managing property or other assets. It is estimated New Zealand has up to 500,000 trusts used for a variety of purposes ranging from owning the family home, through to use in business, by charities, and by many, including Māori, to hold land and other assets collectively.

Law Commission President Sir Grant Hammond said trusts form core a part of New Zealand’s economic, social and legal infrastructure. It was therefore vital for the law on trusts to be clear and accessible to ordinary people who use them. He said the current law was outdated and much of it is difficult to understand.

“The nature of the trust relationship and its legal implications are not always well understood by the parties, which is not surprising given the age and complexity of the current law.

“While people are entitled to hold and dispose of their property as they wish, those setting up trusts cannot simply receive the benefits of the arrangements, without also having to take on the essential features of the trust that confer those benefits,” Sir Grant said.

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The Commission considers it is in the public interest to have a modern statute that gives trustees and others guidance as to how a trust is to be managed and increases the accountability of trustees.

“The new Trusts Act will set out the core characteristics of a trust and requirements for creating a trust. The Act will make it clear what is, and what is not, a trust. It will also provide a summary of the basic obligations that trustees owe to beneficiaries.”

Under provisions recommended by the Commission, if a trust has purportedly been established, but the reality is that the person who established it continues to manage the trust assets as if they are their own personal property, the new Act would make it clear that the court could find that a trust has not in fact been established.

The Commission emphasised that the recommendations did not undermine legitimate uses of trusts. The new Act would preserve the flexibility and usefulness of the trust.

The Commission also recommends giving the Family Court a wider ability to deal with trusts in order to do justice when resolving relationship property disputes when couples separate. Under the proposed reform, the Court, where necessary, would be able to include the relationship assets that have been placed in a trust by one partner in the property to be divided between the couple.

The Commission’s Report brings together the key findings and recommendations that have emerged during their comprehensive review.

Sir Grant said the Commission’s recommendations would be of considerable benefit to existing as well as to new trusts. The proposed reforms will provide simplified, relevant procedures to better enable the day-to-day business of trusts with minimal expense. They will make the administration of trusts more straightforward and should reduce the need to go to court.

The Commission also intends to look at further areas of trust law in two later reviews, one on purpose trusts and charitable trusts, and one on statutory trustee companies and other corporates acting as trustees.

http://www.lawcom.govt.nz/project/review-law-trusts/report

ENDS

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