Family trust law to set out the rules of the game
Errol Anderson runs his family trust according the rules. Anderson has always been a man of principle, so much so that the rugby-mad family man made headlines in 2006 when he took a public stand against the ‘‘throatcutting’’ All Blacks haka, believing the aggressive gesture had no place in sport.
He brings the same upright principle to his family trust, on which he is a co-trustee with his wife.
That means knowing the trust deed, acting according to its rules, keeping formal accounts of trust assets, and keeping a minute book of decisions.
‘‘In our case, we run it on a daily basis. Really, we are talking to each other as husband and wife,’’ he says.
‘‘Financial statements are produced, and are provided to the named beneficiaries.’’
There are an estimated 300,000-500,000 trusts in New Zealand, and there’s a growing body of evidence many trustees are nowhere near as diligent as Anderson in carrying out their duties.
It’s that mass of inferior trusteeship that prompted the creation of the Trusts Bill, which got its first reading in Parliament earlier this month, and which provides trustees with a succinct description of their legal duties.
As well as charitable and community trusts, the mass of trusts in existence include many ‘‘family’’ trusts, which ordinary families set up to ‘‘protect’’ assets such as the family home, the farm, or inheritances left by previous generations.
‘‘Protect’’ is a euphemism that once stood for avoiding death benefits, means-tested old age residential care subsidies, and not having to pay legitimate creditors.
Trusts are also a way people entering a new relationship prevent their assets from becoming ‘‘relationship property’’ in case their new relationship fails.
Many of the ‘‘protections’’ which drove a massive trust sales industry are now weakened, or obsolete. Death duties were ditched. Means-testing now takes trust assets into account.
Many creditors now require people with wealth in trusts to use trust assets to guarantee their debts.
And trusts have been under assault by divorce lawyers and the Family Court.
Being a trustee is an onerous task.
Trustees hold assets like homes, farms and investments in trust for beneficiaries.
Each ordinary family trust ought to be run like the Andersons’, but there have long been grave suspicions many aren’t.
That’s led to more than a decade of debate over whether the ‘‘rules’’ of being a trustee needed setting out in easy-to-read ‘‘black-letter’’ law so no trustee has any excuse for behaving badly.
That’s what the Trusts Act is meant to do, as well as strengthening the hand of beneficiaries by giving them clearly-understood rights to trust information, so they can play a bigger role in keeping trustees honest.
There are three groups of behaviours the Trusts Bill codifies, and as the bill is not mired in party politics, even a change of government looks unlikely to stop the bill from becoming law.
The first set out in the legislation are the ‘‘mandatory’’ duties which a trustee must follow. They are simple, and amount to taking the trust seriously.
A trustee must know the terms of the trust.
A trustee must follow the terms of the trust.
A trustee must act honestly, and in good faith.
A trustee must act for the beneficiaries of the trust.
A trustee must exercise the powers they have for a proper purpose.
The second group of behaviours are governed by the ‘‘default’’ duties for a trustee to act with reasonable care and skill, to invest prudently, not to do things for their own benefit, and to act impartially towards beneficiaries.
The third group of duties are about the information trustees must keep, and which of them must be made available to beneficiaries.
These are to keep records (including of trust assets, trustee decisions, and changes to the trust), and to make them available to sane, adult beneficiaries.
A nationwide survey of trustees by Perpetual Guardian late last year found that if running a trust could be compared to driving a car, many of us were asleep at the wheel.
Despite having one of the highest rates of family trust use in the world, with almost one in five people (18 per cent) telling the survey researchers they ‘‘had’’ a family trust, we do not lead the world in our trust-management skills.
The survey of 1223 people found a third of trustees didn’t know what was in the trust deed they were operating under.
Only 60 per cent of trustees met at least annually, and fewer than half (49 per cent) kept an up-to-date minute book.
Whether a Trusts Act will change that is yet to be seen, but it can’t hurt to bring clarity.
The preface to the Trusts Bill indicates how confusing being a trustee currently is for nonprofessional trustees.
‘‘The Trustee Act 1956 is outdated and no longer reflects current trust practice,’’ it reads. ‘‘Many of the provisions are difficult to understand and need to be read alongside a considerable body of case law.
‘‘One of the policy objectives of the bill is to provide clear, simple, and accessible trust law. The bill sets out important principles of trust law that have been established through centuries of case law.
‘‘Making trust law more accessible in this way, and thereby improving the understanding of these principles, will help to ensure trusts are administered properly.’’
It may also have the effect of waking amateur trustees up to seek training.
The Trustee Association hopes to be ready to help. Anderson said it’s working on level 3, 4, and 5 certificate qualifications, as well as a level 6 diploma for people who want to up their game.