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New Zealand Law Commission - Government Responses |
Last Updated: 18 September 2016
Government Response to Law Commission Report on
Review of the Law of Trusts: A Trusts Act for New Zealand
Presented to the House of Representatives
Government Response to Law Commission Report on
Review of the Law of Trusts: A Trusts Act for New Zealand
Introduction
The Government has considered the Law Commission’s Report, Review
of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130) (the
Report) presented to the House of Representatives on 11 September 2013, and
responds to the Report in accordance
with Cabinet Office circular CO (09)
1.
Executive Summary
The Trustee Act 1956 (the Act) and case law regulate the administration of
trusts in New Zealand. The Law Commission has reviewed
the core
institution of the trust in New Zealand and has made 51 recommendations to
modernise and clarify trust law.
The Government agrees with the Law Commission’s key recommendation to
replace the Act with a new Trusts Act. However, further
work is required on
the detail of the new Trusts Act.
Background
Trust law is a core part of New Zealand’s legal system. The Report
estimates that there may be between 300,000 and 500,000
trusts currently in
New Zealand and that trust use here is considerably greater than that of
comparable countries.
The Report has highlighted that, while trusts are widely used in New
Zealand, there is widespread misunderstanding about what
a trust means and
the accompanying rules. These misunderstandings can lead to disputes
between settlors, trustees
and beneficiaries, and increase the risk to
individuals of undesired legal consequences.
Trustee Act 1956
The Act is more than 50 years old, and issues with New Zealand trust
law are due, in part, to the complexity and age
of the Act. The
Act does not reflect modern trust practice, is unnecessarily complex and
difficult to understand
and, in some places, simply unreadable.
Law Commission review of the Act and trusts
The Law Commission began a review of trust law in March 2009 and the Report is the product of the first of three stages of the Law Commission’s wider review of trusts. The Report focuses on express private trusts, which are created by a person transferring property into a trust. Private trusts are generally created for the benefit of one or more individuals. Other types of trusts such as charitable or purpose trusts, where a trust is
created, for example, for religious or educational purposes, will be dealt
with in stage 2. Corporate trustees will be reviewed in
stage 3 of the Law
Commission’s review.
Government Response
The Government wishes to thank the Law Commission for the Report and
for its work throughout its comprehensive review of trust
law and the
Act.
A new Trusts Act
The Law Commission recommends that a new Trusts Act, to replace
the Act, be enacted. The Government agrees with this
recommendation.
A new Trusts Act will modernise the law of trusts making it clearer and
more user- friendly for individuals and business.
Recommendations need further analysis before a Government view is
possible
Apart from the recommendation for a new Trusts Act, further analysis of
the regulatory impact of the recommendations is required,
including:
Broadening the scope of the legislation
The Law Commission proposes to broaden the legislation so that it
would include general trust concepts and relationships
imported from the case
law.
Modernising the existing trusts framework
The Law Commission recommends that the new Trusts Act be designed to
make the trust law rules reflect modern trust practice.
Accessibility
Much of the statute and case law is unclear, especially around the
powers, roles and requirements of the participants in a trust.
People
don’t always understand the roles and duties of trustees, especially
trustees who are not legally trained.
Beneficiaries don’t know what
they can expect from trustees. For example, the Commission recommends
clearly articulating
the obligation of trustees to provide information to
beneficiaries.
Simplifying administration of trusts
The Law Commission identifies that the administrative machinery for
trusts can be inaccessible in practice and recommends
simplification.
Jurisdiction of the courts
Currently the District Court has jurisdiction to determine breach of trust
claims within its monetary limit, but cannot exercise
any powers under the
Act. These are exercised by the High Court. The Law Commission recommends
giving the District Court
concurrent jurisdiction with the High Court under
the new Act. The Report also recommends that the Family Court’s
powers be supplemented to give the court more powers to deal with trust law,
allowing it to make any orders necessary to effectively
deal with all issues
that are properly before it.
Interface with case law
The Law Commission’s recommendation for a new Trusts Act is not
intended to create a complete codification of trust law.
There is likely to
be a complex relationship between the status of existing case law and the
proposed new Trusts Act.
Further analysis is needed on how such a
relationship would work.
Relationship of a new Trusts Act with other statutory
trusts
Further analysis is required regarding how a new Trusts Act would apply
to specific legislation governing trusts, including
Financial Markets
legislation.
Public Trust
The Law Commission is proposing new administrative powers for the Public Trust.1
Therefore, further work is required in this area before the Government is
able to form a view.
Insolvency
The Commission is proposing a new power for the Official Assignee to be
given the right to apply to the court to challenge the validity
of a trust,
notwithstanding that the bankrupt person would have been unable to exercise
that right prior to bankruptcy2.
Perpetuities
Reforming and simplifying the law by setting a “bright line”
maximum duration of 150 years for the duration of
a trust. Currently there
is a complex set of rules under existing law as to the maximum possible
duration of a trust.
1 Recommendations 12, 21, 22, 23, 26, 43 and 44.
2 Recommendation 45.
Relationship property and trusts
There are two recommendations relating to relationship property3
that require further investigation before the Government is able to
form a view. These recommendations would allow trusts
to be set aside
and assets distributed to a partner in a relationship property claim.
These recommendations will make significant
changes to legislation; will have
regulatory implications that are more than minor; and will have flow on
effects that need
to be carefully analysed.
Transitional provisions
The Law Commission’s general approach is that the new Trusts Act
should apply to existing as well as new trusts
from the date it comes
into force. There are a few provisions for which a transition period of
two years is proposed.
Consideration needs to be given to the identification
of, and compliance costs impact on, existing trusts to make them compatible
with a new Trusts Act. Comprehensive communications and guidance on any
changes would also be essential.
Next Steps
The Government has directed the Ministry of Justice to analyse the Law
Commission’s recommendations and report back.
Once this work is
completed, the Government will form a final view on all of the Law
Commission’s recommendations.
Because of the significant number of
substantive recommendations, this work will take considerable project
resources and
the timing for the report back and a new Trusts Act will need
to be balanced alongside other competing Government
priorities.
3 Recommendations 50 and 51.
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URL: http://www.nzlii.org/nz/other/lawreform/NZLCGovResp/2014/130.html