Chapter 2
Why a new Trusts Act?

Principles behind the review

2.21The Law Commission’s approach has been guided by three core principles. The reforms should:

Fit for the New Zealand context but consistent with overseas trust law

2.22We have been clear throughout our review process that the new Trusts Act must be fit for purpose in the context of 21st century New Zealand. Indeed, one of our principal intentions in releasing our Preferred Approach Paper was to “road test” our proposals against New Zealand practice so that we were not proposing something that would unnecessarily impinge on legitimate practice.

2.23It is not enough, however, that New Zealand trust law be fit for purpose in New Zealand. In our view, it is essential that New Zealand trust law be largely consistent with overseas trust law, in particular the trust law of England and Wales, Australia, Canada and other common law countries to which New Zealand often compares its law. There would be little to be gained, and an enormous amount to be lost, by trying to invent a peculiarly New Zealand institution. There is the general point that New Zealand courts and lawyers, and through them New Zealanders and their businesses, can only gain by being part of a wider legal family. Departures from the common law norm should be examined closely before being recommended. New Zealand lawyers and their clients benefit on a daily basis from overseas learning and development in what is very much a shared common law institution. In relation to trust law, both those with domestic and foreign wealth who are considering establishing trusts in New Zealand will be sceptical of an institution that is too peculiarly New Zealand, and too different from the trusts offered by other jurisdictions.

Respecting individuals’ rights to hold and transfer property as they wishTop

2.24One of the core values of both New Zealand society, and its legal system, is that individuals ought to be able to hold property in the ways in which they wish to hold it, subject always to other legal requirements. The trust has traditionally been, and will remain, one of the ways in which people can legitimately choose to hold their property, transfer their property to others, or set up a charity. We have taken a neutral approach to the underlying uses the trust might be put to and the advantages that might be sought through their use. Rather, the focus of this project has been getting the core institution of the trust in as good a shape as it can be, leaving regulation of the consequences of the use of trusts to more specific policy areas. In this sense our project is similar to that carried out by the Law Commission in relation to the Companies Act, the focus of which was getting the core institution of the company correct, as opposed to trying to regulate the uses to which companies might be put.

Upholding the trust as a robust institution with core mandatory obligationsTop

2.25An important corollary of respecting New Zealanders’ decisions in relation to how they wish to hold or transfer property, is that notions of what is a trust, and what is not a trust, including the obligations that must be present in a trust, ought to be robust. During the consultation period we have been somewhat alarmed by general misconceptions as to what might be permissible as a “trust”. Indeed, the lack of clarity among some as to what constitutes a trust has led to the courts making use of doctrines such as “sham” or “illusion” as ways of describing what purported to be a trust, but which is not, in some instances. Our new statute is designed to provide that degree of robustness. However, robustness does not only mean that there should be a commonly identified understanding as to what a trust is. It requires the law that underpins the trust to be fit for purpose to enable settlor intentions and beneficiary expectations to be given effect to by trustees, and when they cannot, the law should contain appropriate mechanisms to enable the terms of the trust to be altered.