The new Trusts Act 2019 becomes law on the 30th of January 2021. The new act replaces the Trustee Act 1956 and the Perpetuities Act 1964 and is intended to make trust law more accessible, to clarify and simplify core trust principles and to set out the basic obligations of trustees.
What does the new Act mean for your trust?
Beneficiary's Rights to Trust Information
The Act creates a presumption that Trustees must notify every beneficiary of certain basic trust information: the fact that they are a beneficiary of the trust, the names and contact details of the trustees, when there are any changes to the trustees, and the beneficiary’s right to request trust information. This presumption is intended to ensure that beneficiaries have adequate information to be able to hold trustees accountable and enforce the terms of the trust deed.
Previously, a beneficiary would not always be aware that they were named as a beneficiary of a trust. The new disclosure requirements are likely to concern many settlors and trustees who had not intended, when setting up a trust, that the beneficiaries would receive such information. This is particularly so in older trusts, where it was common for wide classes of extended family members (grandchildren, siblings, nieces and nephews, spouses or de facto partners of extended family members) to be named as discretionary beneficiaries.
The Trusts Act 2019 differentiates between mandatory trustee duties, which are not able to be modified or excluded by the trust deed, and default duties, which will apply unless the trust deed expressly excludes them.
The mandatory duties include:
- A duty to know the terms of the trust
- A duty to act in accordance with the terms of the trust
- A duty to act honestly and in good faith
- A duty to act for the benefit of the beneficiaries, and
- A duty to exercise the trustee's powers for proper purposes.
The default duties, which will apply unless they are expressly excluded by the trust deed, are:
- A duty to have a general duty of care
- A duty to invest prudently
- A duty not to exercise power for own benefit
- A duty to consider exercise of power
- A duty not to bind or commit trustees to the future exercise of a discretion
- A duty to avoid any conflict of interest
- A duty of impartiality
- A duty not to profit from the trusteeship of a trust
- A duty to act for no reward, and
- A duty to act unanimously.
Trustees will need to consider the applicability of each of these to their particular trust and decide whether they should be modified or excluded from applying to ensure that trustees are not in breach of their duties. Trustees of trusts which are already in existence should consider whether the terms of their trust deed should be varied in order to exclude any of these duties where the trust deed provides for such a variation.
The Act clarifies documents which trustees are required to retain. These include:
- The trust deed
- Any current memorandum of guidance
- Any deeds varying the trust deed or changing trustees
- Documentation recording the assets and liabilities of the trust, and
- Any other documents necessary for the administration of the trust.
Widened Powers of the Court
The Act gives the court the power to review any act, omission or decision of a trustee on the grounds that such an act, omission or decision was not reasonably available to the trustee in the circumstances. The Act also gives the court wide powers to set aside any act or decision, to restrain a trustee from taking a proposed course of action, and to make any other order deemed necessary by the court. This is likely to result in and increase in litigation involving trusts
The Act will also widen the powers of the Family Court to make orders involving trusts. This is intended to promote efficiencies when trusts are involved in relationship property disputes in the Family Court and to prevent litigants having to make further applications to the High Court.
Trusts can Operate Longer
The current laws provides that trusts can operate for up to 80 years from the date they were established. The Act repeals the Perpetuities Act 1956 and abolishes the common law rule against perpetuities. It also states that the duration of a trust may be up to 125 years. The Act also specifically states that assets held by one trust and resettled to another trust must be distributed within 125 years of the original settlement date.
It's important that all trustees prepare for the changes to the legislation by undertaking a review of the trust, identifying areas where further work is required and making sure that the trust will be able to operate in accordance with the new legislation. It may also be with considering whether the trust will still achieve the purposes you established it for, and if not, whether the trust could be be wound up. Such a review can take time and we encourage you to start now.
We recommend reviewing your trust before the Trusts Act 2019 becomes law. For more information or for help with your review, contact us on (03) 366 7469.