18.18However, there is no register for standard inter vivos or testamentary trusts. In respect of incorporated charitable trust boards, registration is the process that establishes such a trust board as a corporate body. As trusts otherwise do not have legal personality, there is not the same necessity for a registration system to establish legal personality. Most trusts registration systems can only serve information collection and record-keeping functions.
18.21It can also be difficult for third parties to know that they are actually contracting with a trustee rather than a beneficial owner. The requirements for the administration of trusts are obligations owed only to the beneficiaries. There is no official body that has the responsibility and access to information to ensure that trusts are being properly administered. A general register of trusts had been suggested by members of the public and media, as a way of officialising trusts and making them more transparent. Compared with the registration and reporting requirements for companies, the absence of a register for trusts means it is comparatively easy for trusts to be established, administered and altered, and for property ownership in trusts to be flexible.
18.22After carefully considering the case for registration, including considering all the matters raised by submitters responding to the Fifth Issues Paper we concluded in the Preferred Approach Paper that a system of registration for trusts should not be introduced.
18.23As we acknowledged in the Preferred Approach Paper, a register of trusts would have some important benefits. The nature and extent of these would depend somewhat on the amount of information that was collected and also on who was able to access this information once a trust is registered. But generally, registration would mean that more information would be available about the number of trusts in existence and how they are being used. Government agencies, beneficiaries and potential creditors would all be likely to gain some benefit from having information available about trust relationships.
18.24However, as we explained in the Preferred Approach Paper, we did not consider the benefits of registration to be sufficient to warrant the introduction of a registration requirement for trusts. Our main reasons were that a register would significantly alter the nature of trusts by giving them a publicly registered status. We considered that this would be a significant shift away from the current treatment of most trusts as essentially private arrangements between citizens. We also questioned whether some of the “problems” identified by some people should truly be viewed as problems. Some of those calling for registration identify the private nature and confidentiality of trusts as a significant problem. However, privacy and confidentiality have historically been recognised as among the essential virtues of the trust form.
18.25We also concluded that the overall costs associated with registration are a significant barrier. First, the costs of establishing and maintaining a register are likely to be substantial. Secondly, registration would impose compliance costs on all trusts, many of which are modest family trusts that could gain no benefits from registration. Unlike companies, which obtain corporate status and with it limited liability via the registration process, trusts would gain nothing through registration; they would only incur cost. The benefits obtained from a system of registration are of a public nature, taking the form of more accurate and better quality information that can be made available to (at least some) government agencies and possibly others. Thirdly, it would be difficult to enforce the registration of the hundreds of thousands of existing trusts without significant resources being expended.
18.26Finally, we also made the point in the Preferred Approach Paper that registration is not the most appropriate way to improve accountability to beneficiaries. It is too blunt an instrument to use for that purpose. We recommend in chapter 5 of this Report that problems relating to proper trust record-keeping and accountability should be addressed by imposing enforceable record-keeping obligations on trustees. We also make recommendations in chapter 5 that have the effect of enhancing the rights of beneficiaries to access trust information. Our overall approach to addressing issues over the misuse or abuse of the trust form is to strengthen the traditional accountabilities within the trust relationship rather than to consider an overlay of regulation.
18.27Most submissions received during the course of our review, on both the Fifth Issues Paper and on the Preferred Approach Paper, have firmly opposed the introduction of registration requirements for trusts. Most have cited one or more of the reasons we have already discussed. A few also stressed the potential risks posed by departing from historical and international norms relating to the private nature of trust arrangements, particularly to the foreign trust industry.
18.28Since issuing the Preferred Approach Paper, we have not been persuaded to alter our position or that we should recommend any other systems of registration for trusts. However, we received three significant submissions from government agencies in support of registration. We think that these warrant some further discussion.
18.29Inland Revenue agreed that a compulsory registration system for all trusts may impose unnecessary additional compliance costs on trusts which do not receive any benefit from registration. However, in its submission on the Preferred Approach Paper, Inland Revenue restated the case for either a compulsory or voluntary register for trusts operating as businesses. It suggested that these could, for example, be defined as all trusts registered for Goods and Services Tax.
18.31We did, in the course of this review, consider both the options of a compulsory or a voluntary register of trusts engaged in business, as one of a suite of possible measures to address trusts that have a corporate trustee, in order to encourage disclosure of status as a trustee. We agree with the Inland Revenue that such a register has the advantage of not applying to most trusts, but of increasing the transparency of some business or estate-holding entities where this would be most useful.
18.32We concluded that a voluntary register would only be effective if there were incentives for trustees to register information about the trust. If corporate trustees were required to disclose their status as trustees in some way, a voluntary register could provide a straightforward method for them to disclose. An incentive suggested by Inland Revenue was that registration could be deemed to provide evidence of the existence of a trust.
18.34We received substantive submissions from Statistics New Zealand and the Reserve Bank of New Zealand in favour of registration. Although we have not been persuaded to change our position, we consider that these agencies raised an important argument for registration, based on the significance of the trust form to New Zealand at an economy-wide level.
18.35Statistics New Zealand supported the establishment of a register of trusts because of its potential to improve the statistical information needed to inform key policy areas. Its submission highlights issues around the accuracy of data currently collected and available on trusts and the importance of accurate data for the national accounts, measurements of New Zealand’s international investment position, and measurements of household savings and wealth used to support social, monetary and retirement policy. The Reserve Bank favoured the establishment of a register for trusts (even if it were a closed register rather than a searchable public one) for these same reasons and stressed the fundamental importance of accurate economic data.
18.36Both agencies were concerned to have accurate information available on trusts from which they, and other public policy agencies, can make assessments at a macro-economic level for policy development. The Reserve Bank identified problems with having to rely solely (as it currently does) on data from the Household Saving Survey and the Annual Enterprise Survey. The Reserve Bank considered that data on the total assets and liabilities that trusts hold would be likely to improve national measures of wealth and saving. It stated that accurate economic information has always been important, but has become more significant in the wake of the global financial crisis.
18.37The Reserve Bank argued that the need for adequate economic statistics was of itself sufficient to justify the establishment of a closed register for trusts. It suggested that the register should capture details of assets and liabilities of all trusts so the information can be used at an aggregate level but that information about individual trusts need not be made public. The Reserve Bank argued that even a register that shows only how many trusts exist would be valuable. The Reserve Bank could then survey samples to get reliable aggregated information on wealth and assets. The Reserve Bank suggested that the current requirement for income-earning trusts to register with Inland Revenue should be expanded to cover all trusts, whether income-earning or not, to create a simple register. Inland Revenue would keep and maintain the register as a closed register.
18.38We are not convinced that the benefits of making better information at a macro-economic level available to government agencies are sufficient to justify the registration of all trusts and the consequential changes to the nature and use of trusts implicit in a registration system. There would need to be strong and compelling evidence that registration would truly generate substantially more accurate and reliable information than the methods currently used. We do not think that a simple registration scheme, of the type suggested in the Reserve Bank submission, could possibly generate the breadth of statistical information discussed.
18.39A register may provide a more accurate picture of the total number of trusts, assuming all trusts are registered, but little more. Agencies might well be able to construct sample surveys from accessing the register, but unless participation was voluntary, such arrangements would add significant complexity to registration. In our view, a substantial amount of information would need to be obtained via registration, and regularly updated, for registration to be at all effective for the purposes these agencies have suggested.
18.40Even if registration would net a substantial amount of robust and useful information for government agencies, that does not necessarily justify registration. In order to compile aggregated information on wealth and assets, the state would be collecting a significant amount of individualised data through registration. The fact that this would be useful to the Government is not of itself sufficient to justify the degree of intrusion into people’s private arrangements implicit in registration. We do not consider that a case for registration on that basis has been justified.