Why a new Trusts Act?
Approach in other jurisdictions
2.42A number of comparable common law jurisdictions have recently reviewed and updated their trust legislation, in light of the archaic nature of much of the existing legislation, changing social and business contexts, and the importance of trusts for asset management within those countries’ economies. All of these are driving forces behind our review as well. Our review also shares many common purposes and themes with these overseas reforms, in particular: providing a clearer and more modern trusts statute; facilitating effective and efficient trust administration; supplying relevant and useful statutory defaults; reducing or removing outdated limits on trustees’ powers; and focusing on the obligations and liabilities of trustees.
2.43Below we highlight some key areas where our recommendations are aligned with these overseas approaches. The approach taken in this review is that trust law should reflect the unique features of the New Zealand trust context. However, because New Zealand is a small nation with relatively limited trusts jurisprudence, it is important for New Zealand law not to move too far out of line with internationally accepted trust law principles. Departure from the law in comparable jurisdictions should occur only where it is justifiable based on the New Zealand context, and then only with caution. Accordingly, in general the recommendations are consistent with recent reforms and accepted approaches in comparable common law jurisdictions, particularly England and Wales, Scotland, Ireland, Canada and Hong Kong.
2.44There are certain areas in which our recommendations have gone slightly further than or departed from the positions of some jurisdictions, such as in setting out in statute the range of trustees’ duties and characteristics of an express trust, and in retaining a maximum duration period for trusts. However, these instances are rare and either do not alter the substantive law or offer only incremental changes that are appropriate for New Zealand trust law.
2.45England and Wales brought in the Trustee Act 2000 which implemented the changes recommended by the Law Commission of England and Wales, along with the Scottish Law Commission, regarding trustees’ duties, powers and delegation. Following this Act there have been further changes in areas such as trustee exemption clauses, classification and apportionment of capital and income, and perpetuities and accumulations. Our expression of the trustee’s duty of care is based on the wording of the Trustee Act 2000. We have also adopted a number of other approaches from the United Kingdom legislation, including the requirement for trustees to prepare a policy statement for delegation of investment powers, and the recommendation for a rule of practice requiring disclosure and explanation of exemption clauses in trust deeds. Like England and Wales, we have also recommended reform of the rule against perpetuities, rather than wholesale abolition, as we have recommended a maximum duration period for trusts.
2.46Scotland’s Law Commission is currently conducting a wide-ranging review and modernisation of trust law. It has completed eight discussion papers, two consultation papers, and a report, covering areas such as the nature and constitution of trusts, trustees and trust administration, variation and termination, and apportionment of receipts and outgoings. It is working on a report covering the majority of the topics on which it has consulted, along with a draft Trusts (Scotland) Bill to replace the existing legislation. The Irish Law Reform Commission has also been reviewing the law of trusts, and produced a report on general proposals along with a draft Trustee Bill in 2008. The Bill is to be included as a Trusts Bill as part of the Government Legislation Programme Summer Season 2013.
2.47The Uniform Law Conference of Canada resolved in 2012 to adopt and recommend for enactment a Uniform Trustee Act, based on the 2004 Report of the British Columbia Law Institute. The purpose of the proposed Uniform Trustee Act is:
… to provide a modernized statute that addresses as comprehensively as is practicable the administration of trusts, including the appointment and removal of trustees, the vesting of trust property, the duties and powers of trustees, trustee remuneration and accounts, and the variation, termination and resettlement of trusts.
The Report on the proposed Uniform Trustee Act notes that it is not a code, but rather is “enabling and supplementary to the general, and largely non-statutory, law of trusts”, and retains a default character, “[e]xcept for certain provisions which are essential to the operation of trusts and expressly stated to prevail over a conflicting term of a trust instrument”.
2.48Likewise, our recommended reforms are largely default in nature, aside from those provisions which are considered to be essential to the operation of trusts and therefore should be mandatory elements. The significant reforms provided for in the Uniform Trustee Act are very similar to those recommended here, including: providing that the powers of a trustee are equivalent to those of an individual with full legal capacity; giving statutory form to the trustee’s good faith duty of care, with professional trustees held to a higher standard; obligations for reporting and provision of information to beneficiaries; giving trustees discretion regarding apportionment of receipts and outgoings between income and capital; permitting delegation of administrative powers; permitting variation without court approval if all beneficiaries of full capacity consent; providing default processes for appointment and removal of trustees; and addressing the effect of exemption and indemnity clauses.
2.49There are some areas where the Uniform Trustee Act differs from our recommended reforms, such as by abolishing the rule against perpetuities without introducing a limit to the duration of trusts, and permitting trustees to be compensated and to act by majority as default provisions. We have differed from that approach to perpetuities on a principled policy basis. Remuneration of trustees and majority trustee decision-making are available where permitted by the trust deed or by another statute (or where permitted by the court in the case of remuneration).
2.50Hong Kong this year introduced the Trust Law (Amendment) Bill 2013, which is currently through its second reading before the Legislative Council. This Bill also contains a great deal of common ground with the reforms recommended in this Report, including imposing a statutory duty of care, and limits on exemption clauses including those covering gross negligence.
2.51Overall, the recommendations in this Report are in keeping with current developments and established approaches to the law regarding trusts and trustees in similar jurisdictions. It is essential that New Zealand remain in line with the international trend towards more modern and comprehensive trust legislation.