New Trustee Disclosure Obligations

In 2013 the law commission was asked to review the Trustees Act 1956 and NZ Trust law generally. Following this initial review, nearly eight years later, the long-awaited “Trusts Act 2019” will finally come into effect on 31 January 2021, replacing the entire 1956 Act.

One of the most significant changes in the new Act that is generating interest from trustees and practitioners alike is the introduction of beneficiary disclosure requirements on trustees. This becomes sensitive if it means disclosing a trust’s financial information, or to what extent some beneficiaries have benefitted more than others. However, the problem is what level of information should be disclosed and to whom?

Under the new Act, there are two layers to the disclosure obligations:

A “presumption” exists that Trustees will make available “basic trust information” to every beneficiary.

A beneficiary may request additional “trust information”.

Basic trust information comprises:

  • the fact the person is a beneficiary of the trust,
  • the name and contact details of the trustees,
  • any changes to the trustees as they occur,
  • their right to request a copy of the trust deed, and
  • their right to request trust information.

“Trust information” has a wide definition and includes information regarding trust property. Although, it specifically excludes “reasons for trustees’ decisions”. It is reasonable to assume ‘trust information’ includes financial information, but how detailed that information has to be is unclear, e.g. does it include amounts distributed to other beneficiaries? Given the new rules are intended to ensure beneficiaries have sufficient information to enforce the terms of the trust deed, it is presumed the answer is yes.

Before making “basic trust information” or “trust information” available to beneficiaries the trustees have to consider numerous factors, including:

  • the personal or commercial confidentiality of the information,
  • the age and circumstances of the beneficiary,
  • the practicality of giving the information, and
  • the effect on the beneficiary and family relationships of providing the information.

After taking all factors into consideration, the trustees can decide to withhold information from beneficiaries if they “reasonably” consider the information should not be provided.

The wording of the new Act is causing uncertainty and unease with existing Trustees as to what exactly their new obligations are and the risk of acting unreasonably. At one end of the scale, risk averse trustees are considering trust resettlements to establish new Trusts with a reduced number of beneficiaries, to preserve confidentiality or reduce the risk of litigation by beneficiaries. At the other end of the scale, trustees are awaiting case law to set the precedent on how to “reasonably consider” the factors above.

Although the legislation needs to be applied correctly (which in itself is uncertain), each situation is different based on the nature of family and beneficiary relationships, which makes it difficult to determine the best course of action.