Law of trusts

For this project, the Commission reviewed the Trustee Act 1956 and trust law generally. The Report, Review of the Law of Trusts: A Trusts Act for New Zealand (R130) was preceded by six Issues Papers. The Report made recommendations for the introduction of a modern and comprehensive Trusts Act to replace the outdated Trustee Act 1956. 

The series of five Issues Papers are on different aspects of the law of trusts and the legislation, and the Preferred Approach Paper outlined the Commission's approach to reform in each of the areas covered. Each Paper asked questions and called for submissions and comments. The Papers are as follows:

• Introductory Issues Paper (IP19) – this is primarily a background paper.
• Second Issues Paper (IP20) − covers concerns with the use of trusts (especially family trusts) in New Zealand.
• Third Issues Paper (IP22) − addresses the rule against perpetuities and the revocation and variation of trusts.
• Fourth Issues Paper (IP26) − focuses on trustees (trustee duties, the office of trustee, and trustee powers).
• Fifth Issues Paper (IP28) − addresses remaining issues such as trading trusts, registration of trusts, court jurisdiction and obligations of trust advisers.
• Preferred Approach (IP31) - outlines the Commission’s preferred approach across the range of possible reforms to trust law that were discussed in the first five Issues Papers. 

The Select Committee report included a list of other topics that it thought would be a desirable part of such a review: 

• the removal of trustees;
• New Zealand becoming a signatory to the Hague Convention on the Law Applicable to Trusts and on their Recognition;
• supervision of, and trust principles in relation to,
• superannuation trusts;
• the extent to which a settlor or trustee can contract out of trustee duties;
• the irreducible core of trustee duties;
  trading trusts;
• access to trust information by beneficiaries; and
  statutory powers to vary and resettle a trust.

The National Party members of the Select Committee, then in opposition, provided a comment that expressed the need for a more comprehensive review of the Trustee Act and was stronger in its criticism of the limited scope of the Bill. This was very poor legislation which results from an ancient Law Commission report. It missed some big issues while concentrating on a series of minor ones. The real need is to repeal the out-of-date Trustee Act 1956 and replace it with legislation which is relevant and up to date. This reference was, in essence, the Government’s response to the recommendation by the Select Committee that there be a wider inquiry into the law of trusts than the Commission’s 2002 Report.

Review of Trust Law in New Zealand: Introductory Issues Paper (NZLC IP19, 2010)

The Commission's Issues Paper, Review of Trust Law in New Zealand: Introductory Issues Paper (NZLC IP19, 2010) is primarily a background paper. Chapter 1 is purely introductory. Chapter 2 traces the development of the trust from its origins in England through to the present day uses of the trust, both in New Zealand and internationally. Chapter 3 examines the key features of the trust with a view to finding a working definition that might possibly serve as a statutory definition for a new Trustee Act or possibly a Trusts Act. Chapter 4 looks at the Trustee Act and comparable overseas legislation and refers to issues to which the Law Commission has been alerted.

The paper asked for views about a possible legislative definition of a trust, practical issues with the Trustee Act, and whether the Act should continue to be a default statute or whether it ought to contain more mandatory provisions. The paper asked for responses to specific questions and seeks comments on the Act and the law that might assist the Commission in its review. 

Some Issues with the Law of Trusts in New Zealand: Review of the Law of Trusts Second Paper (NZLC IP20, 2010)

The Commission's Issues Paper, Some Issues with the Law of Trusts in New Zealand: Review of the Law of Trusts Second Paper (NZLC IP20, 2010) covers issues with the use of trusts (especially family trusts) in New Zealand. This paper looked at the purposes for which family trusts are established, including reducing tax obligations, protection of assets from creditors and relationship property claims, and meeting eligibility thresholds for government assistance. The paper examined different legislative and judicial responses to the use of trusts to “look through” or disregard a trust where a trust has been used to frustrate the underlying policies of particular statutes.

The Commission posed options for how the law could address concerns about the use of trusts. The paper sought comment from as broad an audience as possible on issues such as why trusts are so common in New Zealand, whether limits should be placed on the uses to which trusts are put, whether high levels of settlor control is an issue for concern, how effective existing legislative mechanisms are at addressing the impacts of trusts and whether the law on sham trusts is satisfactory.

Perpetuities and the Revocation and Variation of Trusts (NZLC IP22, 2011)

The Law Commission's Issues Paper, Perpetuities and the Revocation and Variation of Trusts (NZLC IP22, 2011) is in two parts.

Part 1 of the paper examined the rules that limit the duration of a trust: the common law rule against perpetuities and the Perpetuities Act 1964. The Commission explored the underlying rationale for the rule against perpetuities and asks whether the rule continues to meet a relevant policy need or whether either the mechanism for achieving this policy or the policy basis itself should change. The paper canvassed different options, including retaining the statutory perpetuity rule, adjusting or extending the statutory rule and abolishing the rule altogether, as has been done in a number of overseas jurisdictions.

Part 2 of the paper looked at the rules that allow trusts to be altered. Trusts may be revoked and varied through various common law, judicial and statutory mechanisms. These rules are examined to ensure that they are clear and workable, and to determine whether reform is needed.

The Duties, Office and Powers of a Trustee: Review of the Law of Trusts Fourth Issues Paper (NZLC IP26, 2011)

The Commission's Issues Paper, The Duties, Office and Powers of a Trustee: Review of the Law of Trusts Fourth Issues Paper (NZLC IP26, 2011).

Part 1 of the paper examined the duties that a trustee owes to beneficiaries of a trust. It gives particular attention to the duty to inform beneficiaries about matters relating to the trust. Part 1 also looked at which of the duties should be considered part of the irreducible core of the trust, that is, which duties should be incapable of being excluded by a trust deed. The Commission considered whether there should be limits on what exemption clauses, which exclude the liability of trustees for failing to carry out the duties, can do.

Part 2 of the paper discussed the appointment, retirement and removal of trustees. It also addresses the powers given to a trustee. These issues were examined to identify whether the law is effective, or whether it should be modernised and improved.

Court Jurisdiction, Trading Trusts and Other Issues: Review of the Law of Trusts Fifth Issues Paper (NZLC IP28, 2011)

The Commission's Issues Paper, Court Jurisdiction, Trading Trusts and Other Issues: Review of the Law of Trusts Fifth Issues Paper (NZLC IP28, 2011), is in four parts.

Part 1 of the paper addressed the powers of the courts in respect of trusts and trustees, including the High Court’s supervisory jurisdiction, powers exercised in breach of trust cases and the Court’s approach to intervening where trustees are exercising discretionary powers not conferred on them by the Trustee Act. It looked at whether the District Court should be able to exercise powers under the Trustee Act within their jurisdictional limit.

Part 2 discussed alternative methods to the courts for resolving trust disputes, including a new mechanism for dispute resolution and greater use of ADR in trusts.

Part 3 examined trading trusts. It looks at the interaction of trading trusts with creditors, raising options for ways in which problems may be addressed, as well as looking at the effect of trading trusts on beneficiaries, problems relating to insolvent corporate trustees and the definition of a trading trust.

Part 4 considerd whether further regulatory requirements for trusts are needed, including registration and reporting requirements, and regulation of trust service providers.

Law of Trusts: Preferred Approach Paper (NZLC IP31, 2012)

The Commission's Issues Paper, Law of Trusts: Preferred Approach Paper (NZLC IP31, 2012) is divided into four parts. Part 1 addressed core trust concepts, including the context and features of trust use in New Zealand, core principles of trust law and the duties of trustees.

Part 2 focused on trustees. It includes chapters on general powers of trustees, investment powers, the appointment and removal of trustees, and custodian and advisory trustees. It also contained a chapter looking at issues that arise in the context of corporate trustees and insolvent trusts, although some of these proposals have application to all trusts and trustees.

The powers and jurisdiction of the courts is discussed in Part 3, which included the revocation and variation of trusts, the power to review the exercise of a trustee’s discretion, and a variety of miscellaneous court powers. Part 3 also looked at the type of trusts jurisdiction that different courts should have and methods for resolving disputes outside of the courts.

Part 4 contained chapters considering trust issues of general application, including the rule against perpetuities and the duration of trusts, and regulation, such as the registration of trusts and requirements for trust service providers. The final two chapters of Part 4 look at the interaction of trusts with other policy areas, and in particular trusts and relationship property.

Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013)

The Commission's Report, Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013) recommends the introduction of a Trusts Act to replace the Trustee Act 1956. The new Act would be a comprehensive statute that modernises the law of trusts in a number of areas and addresses key matters that are currently only governed by case law.

The Report contains 51 recommendations addressing a wide range of matters relating to the roles of the different parties involved in a trust and the powers of the courts. The matters addressed by the recommendations include:

• setting out the characteristics of a trust and how a trust is created
• setting out the duties of trustees
• modernised trustee powers provisions
• a modernised, flexible approach to investment
• improved procedures for the appointment and removal of trustees
• more comprehensive and useful provisions on the variation and revocation of trusts
• a refined approach to the power of the courts to review the actions of trustees, and
• the replacement of the rule against perpetuities and Perpetuities Act with a new rule limiting the maximum duration of a trust.

The Government responded to the Law Commission's R130 to say:

"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."

Most of the report’s recommendations were enacted in the Trusts Act 2019.