E31(130) NovemberAugust 2013, 2010, Wellington, Wellington, New New Zealand Zealand | | REPORT REPORT 130 119 REVIEW OF THE LAW OF TRUSTS A TRUSTS ACT FOR NEW ZEALAND August 2013, Wellington, New Zealand | REPORT 130 REVIEW OF THE LAW OF TRUSTS A TRUSTS ACT FOR NEW ZEALAND The Law Commission is an independent, publicly funded, central advisory body established by statute to undertake the systematic review, reform and development of the law of New Zealand. Its purpose is to help achieve law that is just, principled, and accessible, and that reflects the heritage and aspirations of the peoples of New Zealand. The Commissioners are: Honourable Sir Grant Hammond KNZM – President Judge Peter Boshier Dr Geoff McLay Honourable Dr Wayne Mapp QSO The General Manager of the Law Commission is Roland Daysh The office of the Law Commission is at Level 19, 171 Featherston Street, Wellington Postal address: PO Box 2590, Wellington 6140, New Zealand Document Exchange Number: sp 23534 Telephone: (04) 473-3453, Facsimile: (04) 471-0959 Email: [email protected] Internet: www.lawcom.govt.nz National Library of New Zealand Cataloguing-in-Publication Data New Zealand. Law Commission. Review of the law of trusts : a trusts act for New Zealand. (Law Commission report ; no. 130) ISBN 978-1-877569-48-7 (pbk.) ISBN 978-1-877569-20-3 (PDF) 1. New Zealand. Trustee Act 1956. 2. Trusts and trustees—New Zealand. I. Title. II. Series: New Zealand. Law Commission. Report ; no. 130. 346.93059—dc 23 ISSN: 0113-2334 (Print) ISSN: 1177-6196 (Online) This paper may be cited as NZLC R130 This report is also available on the Internet at the Law Commission’s website: www.lawcom.govt.nz ii Law Commission Report The Hon Judith Collins Minister Responsible for the Law Commission Parliament Buildings WELLINGTON 29 August 2013 Dear Minister REVIEW OF THE LAW OF TRUSTS: A TRUSTS ACT FOR NEW ZEALAND (NZLC R130) I am pleased to submit to you the above Report under section 16 of the Law Commission Act 1985. Yours sincerely Sir Grant Hammond President Review of the Law of Trusts: A Trusts Act for New Zealand iii Foreword Trusts play a central role in New Zealand society. Trusts are used in many sectors of our society and economy. They are utilised, for instance, by families to hold their wealth collectively, by those seeking to contribute to society through charities, by those in business who seek a flexible governance structure for what they are doing, by financiers involved in complex transactions, and by Māori to hold Māori land or provide governance for Treaty settlements. The law that lies behind the trust is, therefore, a key part of New Zealand’s legal infrastructure. Our work on this reference has led us to the clear conclusion that the current legislation underpinning trusts is unsatisfactory and in need of reform. For the following reasons, this Report recommends that a new Trusts Act should be introduced: . There is confusion in the community about the role of settlors, the duties of trustees and the rights of beneficiaries that in our view threatens the institution of the trust. The Trustee Act 1956 is sadly in need of modernisation; in parts it is unreadable, and its provisions are inaccessible when they are most needed to aid with the administration of trusts to allow trusts to fulfil the purposes for which they were set up. The default provisions of the Trustee Act 1956 that are essential to trusts working efficiently and effectively no longer represent current good practice, and are a barrier rather an aid to getting trusts right. This Report concerns the core institution of the trust and looks at how the law might generally support the institution of the trust to ensure its continued efficacy and usefulness. The Law Commission intends to continue to look at more specialised areas of trust law, such as charitable and other purpose trusts, and the use of companies and other corporates as trustees. The Law Commission received the reference on which this Report is based in 2009, as a result of the Select Committee report and 2007 Bill, based on the 2002 Law Commission Report Some Problems in the Law of Trusts. Similar references have been pursued across the Commonwealth by other law reform agencies that, like us, have been charged with improving the law underpinning the trust. In conducting our review we have been mindful throughout that flexibility as well as inventiveness have always been at the heart of the English, and now New Zealand, tradition of trusts. We have seen our role as one of ensuring that trust law is as robust as it can be for 21st century New Zealand, rather than making recommendations as to uses to which trusts might be put. Part of ensuring that robustness requires the law to be clear as to what is, and what is not, a trust, and the fundamental duties trustees must owe. Our primary recommendation is the enactment of a Trusts Act which would incorporate, modernise and make more efficacious the current provisions of the Trustee Act. The Trustee Act simply does not provide New Zealand with all that a modern trusts statute ought to. Our central aim is to make the day to day administration of trusts easier, and make resolution of difficulties less expensive and more efficient. A new Trusts Act would not only deal with the matters currently dealt with by the Trustee Act. While we have not attempted the codification of the law of trusts, we have proposed that the new statute set out the characteristics of express trusts, both to signal the sorts of arrangements that would be subject to the new Act and also to provide guidance to New Zealanders as to what constitutes an express trust. iv Law Commission Report In short, the expanded provisions of the Trusts Act will provide New Zealanders and others, be they settlors, trustees or beneficiaries, with much clearer guidance as to what their rights, obligations and duties are. We recommend an expanded statute that would set out expressly the duties that all trustees must always owe, and those duties that trustees owe in the absence of modification in a particular trust. We have also made important recommendations relating to the provision of information to beneficiaries. In addition to our proposals for a new Trusts Act, we make a recommendation that would make an important change to remedies available under section 44C of the Property (Relationships) Act 1976. The change would allow courts to order the transfer of trust assets that, but for being placed in trust, would have been available as relationship property. We also recommend changing the Family Proceedings Act 1980 by extending the provision in section 182 that aids the expectations of married beneficiaries of trusts settled in expectation of their marriage to beneficiaries who are in a de facto relationship. These reforms do not in our view upset basic trust principles, but remedy substantial injustices that we have been made aware of. In our view such a targeted response to these injustices makes more sense than the current procedure by which courts are asked to unpick complex trust arrangements under the headings of “sham” or “illusion”, when what is really alleged is that the arrangements have defeated legitimate expectations of one spouse. Many will, of course, ask how our proposed reforms would affect existing trusts. We have been conscious throughout our review that the rules of the game should not be changed to the detriment of settlors, trustees or beneficiaries. In fact, the vast majority of reforms shore up current practice and clarify the application of the existing law. Where there are changes, these are designed to make life easier rather than harder. There are some areas where we have, for good and sufficient reasons, pushed beyond current law and practice. The way we have phrased these recommendations is designed to mitigate any perceived ill effect. We have carefully considered these and have recommended an appropriate lead-in period so that practice can adjust, and, if desired, settlors and trustees can make changes to specific trust deeds. Of course, trustees will need to keep under review their administration of trusts, but they are already so obliged and such a review should be easier rather than harder as a result of our recommended reforms. But our sense, and the sense from the extensive consultation that we have undertaken, is that there is much in our recommended statute that is helpful for trustees and the trusts that they administer, and there are real costs in the cumbersome and outdated procedures enshrined in the current Act. This Report, and the new Trusts Act it recommends, give New Zealand the chance to get its trust law fit for the 21st century. Sir Grant Hammond President Review of the Law of Trusts: A Trusts Act for New Zealand v Acknowledgements The Law Commission is grateful to all those who have assisted during the course of this project. In particular, we acknowledge the generous contribution of time and expertise from our reference group: . Kerry Ayers, Helmore Ayers . Andrew Butler, Russell McVeagh . Chris Kelly, Greg Kelly Law . Greg Kelly, Greg Kelly Law . Jessica Palmer, Senior Lecturer, University of Otago . Bill Patterson, Patterson Hopkins . Professor Nicola Peart, University of Otago We are grateful for the valuable contribution of the Parliamentary Counsel Office in assisting with the preparation of indicative draft provisions. We are appreciative of the assistance provided by the New Zealand Law Society, Auckland District Law Society and New Zealand Institute of Chartered Accountants in giving us extensive feedback and in organising consultation meetings with their members.