Overlaid with these times of COVID-19, where many are reflecting on their existing Trusts and dispositions, is a new Trusts Act which will impose new obligations on trustees, settlors and beneficiaries and affect how Trusts operate.
It is essential that any reflection and review takes into account this new regime to ensure a Trust operates as was intended and with the required flexibility particularly taking into account changed circumstances of, and the addition of further, beneficiaries over time.
The Trusts Act 2019 (Act) comes into effect on 30 January 2021, and will introduce significant changes to trust law. Our experts discuss key areas you may want to consider in the context of family trusts. If you have any questions about the Act or personal planning arrangements more generally, please contact one of our experts.
Trusts need to be made fit for purpose
Many Trusts will need some form of changes in light of the new Act, but typically their existing structure will be fit for purpose, or can be made so with some variation.
In some cases though, a resettlement of the Trust on another, perhaps new, Trust which is more purpose fit, may be desirable. Or perhaps, in certain cases, the conclusion may be reached that the Trust has served its purpose and can be wound up.
We recommend that variations, resettlements and winding-ups are carried out before the Act comes into effect.
Once a sound Trust structure is established, we recommend that the trustees and settlors consider:
- whether the current trustees are willing, and able, to take on the additional responsibilities imposed on them by the Act. If not, steps should be taken to effect the retirement or removal of unsuitable trustees and, where appropriate, the appointment of new ones; and
- the way in which the Trust is administered due to the increased rigour imposed by the Act including, for example, processes for appointment of attorneys and agents, retention of Trust documentation, provision of information to beneficiaries, and the making and recording of trustee decisions.
We look at these issues in more detail below.
Settlors may need to make changes
Ahead of the new Act, we recommend that settlors remind themselves of their roles in the Trust, and consider whether any steps should be taken by them to exercise these roles.
- do they hold the power of appointing and removing trustees?
- do they have the power of adding and removing beneficiaries?
- are there any other roles they hold; for example, input into variations of the Trust deed?
Trustees will have greater responsibilities
There will be an increased focus on the responsibilities of trustees under the Act.
Every trustee will be required to hold a copy of the Trust deed and any variations.
At least one trustee will also be required to hold records of Trust property, records of decisions, copies of contracts, accounts (where these are prepared), removal and appointment of trustee documents, letters of wishes and any other documents necessary to administer the Trust.
So, steps need to be taken to ensure that these are held by the appropriate people, and that there are processes in place to pass these on to newly appointed people as the need arises.
There is a presumption in the Act that trustees provide every beneficiary with the following basic information:
- the fact that a person is a beneficiary of the Trust;
- the name and contact details of the trustees;
- the details of each change of trustee as it occurs;
- the right of the beneficiary to request a copy of the terms of the Trust; and
- the right of the beneficiary to request information regarding:
- the terms of the Trust;
- the administration of the Trust; and
- particulars of the Trust property.
It should be noted, however, that “reasons for trustees’ decisions” are not part of the information that beneficiaries are generally entitled to.
The presumption regarding provision of information is subject to an obligation on trustees to consider, before supplying the information, a range of factors set out in the Act.
These factors include, amongst a number of others; the likelihood of the beneficiary receiving Trust property in the future, and the expectations and intentions of the settlor at the time the Trust was established.
Thought should be given, by the people holding the power to add and remove beneficiaries, as to whether the range of beneficiaries in the Trust should be narrowed.
If there is not a memorandum/letter of wishes already in existence from the settlor setting out why the Trust was established, and who is principally intended to benefit, then this would be a useful opportunity to have one done.
Processes should also be put in place around providing information to beneficiaries.
The Act will impose five mandatory duties on trustees. These cannot be modified or excluded in the Trust deed, and if the wording of a Trust deed (including an existing Trust deed) purports to do so, that modification or exclusion will be invalid.
The mandatory duties are:
- 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 beneficiaries; and
- a duty to exercise powers for a proper purpose.
The Act also imposes ten default duties that must be performed by trustees unless modified or excluded in the Trust deed. The default duties are:
- a duty of care;
- a duty to invest prudently;
- a duty not to exercise powers for the trustee’s own benefit;
- a duty to actively and regularly consider the exercise of the trustee’s powers;
- a duty not to bind or commit trustees to a future exercise or non-exercise of discretion;
- a duty to avoid conflict of interest between the trustee and the beneficiaries;
- a duty of impartiality to beneficiaries (however it should be noted that impartiality does not necessarily mean equality as between beneficiaries);
- a duty not to profit;
- a duty to act for no personal reward; and
- a duty to act unanimously.
Most existing Trust deeds will already modify these default duties to some extent. It is common, for example, for Trust deeds to modify the duty “to act for no personal reward” to permit professional trustees to charge for their services.
It would be a worthwhile exercise to review existing Trust deeds to see whether further modification is warranted to control the application of the default duties.
The Act will impose additional responsibilities on trustees who are appointing attorneys or agents to carry out functions for them.
Trustees will need to keep these appointments under review, and there are requirements to give notice of the appointments of attorneys to any co-trustees and any person with the power to remove or to appoint trustees.
Processes should be put in place around these responsibilities.
It would be a useful exercise also, at this current time, to review what appointments of agents and attorneys currently exist for the Trust.
With the increased focus on trustee responsibilities consideration should be given to the way in which trusts are administered, including, for example, considering ongoing processes for the making and recording of trustee decisions.
Thought should also be given as to whether the current trustees are willing, and able, to take on the additional responsibilities imposed on them by the Act, and if not, on the steps that should be taken to effect the retirement or removal of unsuitable trustees, and, where appropriate, the appointment of new ones.
Variations need to be authorised by the Trust deed
If, having considered these matters, it is felt that some changes are needed, the next issue to consider is whether a power to vary the Trust deed actually exists in the Trust deed, and if so, how wide or narrow is that power, and can it be used to make the modifications desired.
One variation, that could be considered for many trusts, is whether to take advantage of the increased maximum lifespan of trusts from 80 years under current law to 125 years under the Act.
We can help
We can assist you in reviewing your current Trust arrangements, having regard to the Act, and attending to any matters arising from that review. Please contact one of our experts.
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