Characteristics and creation of a trust
Indicative draft provisions
(1) In this Act, unless the context otherwise requires,—
beneficiary means a person who receives, or who will or may receive, a benefit under the terms of a trust; and includes a discretionary beneficiary; and may include a settlor or trustee if the settlor or trustee is included as a beneficiary under the terms of the trust
discretionary beneficiary means a person who may benefit under an express trust at the discretion of the trustee or under a power of appointment but who does not have a fixed, vested, or contingent interest in the trust property
express trust has the meaning given to it in section 3
permitted purpose means a charitable purpose and any other purpose for a trust that is permitted in law
settlor means a person who settles property on a trust, or transfers value to a trust or for the benefit of a trust on terms of trust; and includes a person who creates an express trust under a will to take effect after his or her death
terms of the trust—
(a) means the terms on which the trust property is settled; and
(b) includes any valid variations or amendments
trust property means any form of property that is settled on the trustees in accordance with the terms of the trust, and includes property derived from or accruing to the trust property (for example, income received)
trustee means a person who holds property under a trust.
(2) In this Act, unless the context otherwise requires, a reference to a trust is a reference to an express trust.
(3) Nothing in this Act prevents a court, in interpreting the provisions of this Act, from having recourse to the general law of trusts and equity where that law is consistent with this Act.
2 Act applies to express trusts
(1) This Act applies to express trusts.
(2) However, in a particular case relating to a resulting trust or a constructive trust, a court may make orders applying so much of the Act to the trust as it thinks appropriate.
Subpart 1 — Express trusts
3 Meaning of express trust
For the purposes of this Act, an express trust means a trust that—
(a) has the characteristics set out in section 4; and
(b) is created in accordance with section 5.
4 Essential characteristics of express trust
(1) The characteristics of an express trust are:
(a) it is a legal relationship in which a trustee holds or deals with trust property in 1 or both of the following cases:
(i) trust property held or dealt with on behalf of the beneficiaries (where a trust has beneficiaries):
(ii) trust property held or dealt with for the purpose of the trust (where a trust is for a permitted purpose); and
(b) the trustee is under a fiduciary obligation to deal with the trust property for—
(i) the benefit of the beneficiaries (where a trust has beneficiaries); or
(ii) the purpose of the trust (where a trust is for a permitted purpose); or
(iii) the benefit of the beneficiaries and the purpose of the trust; and
(c) if the trustee’s duties are enforceable, they may be enforced against the trustee by—
(i) any 1 or more of the beneficiaries where a trust has beneficiaries; or
(ii) the Attorney-General where the trust is a charitable trust; and
(d) as a consequence of paragraphs (a) to (c), the beneficiaries have equitable rights in or in respect of the trust property.
(2) An express trust must not have the sole trustee as the sole beneficiary of the trust.
5 Creation of express trust
An express trust is created,—
(a) subject to any formalities prescribed by a statute, by the settlor who, with reasonable certainty and by words or actions,—
(i) indicates an intention to create a trust; and
(ii) identifies the beneficiaries or the trust purpose; and
(iii) identifies the trust property; or
(b) if a statute provides for the creation of an express trust, in accordance with that statute.
6 No express trust except under section 5
(1) A trust, if it is to be an express trust, must be created in accordance with section 5.
(2) Nothing in subsection (1) precludes the invalidity of an express trust on any other ground recognised at law.
Because the definition of “person” in the Interpretation Act 1999 includes a corporation sole, a body corporate and an unincorporated body, the various definitions in clause 1 that refer to a person are inclusive of these forms of non-natural person. In the definition of “settlor” in clause 1, we understand that there could be multiple settlements made by the same settlor to the same trust, and also multiple settlors to the same trust. In the Financial Markets Conduct legislation context, definitions of “settlor” and “trust property” may differ from those in clause 1.
Clause 4 is intended to bring within the ambit of the Act any express trusts currently recognised by law. It restates general trust law principles and is intended to be broad and inclusive. It emphasises the core characteristics of trusts: the fiduciary nature of the obligation, the trustee’s legal ownership of trust property, the proprietary effect of trusts and the enforceability of trusts. In describing the trust as a “legal” relationship in clause 4(1)(a), “legal” is intended to have a broad meaning, inclusive of equity. Clause 4(1)(a), (b) and (c) are intended to accommodate purpose trusts, but the drafting may need to alter slightly once the Law Commission’s charitable and purpose trust review has been completed. Clause 4(1)(c) is phrased as it is because the limited category of non-charitable purpose trusts that are currently permissible are, although valid, unenforceable.
Clause 5 sets out how a trust is created by referencing “the three certainties”, the well accepted requirements for the creation of a trust, as well as statutes that establish trusts, such as Te Ture Whenua Maori Act 1993. The requirements for the creation of a trust are subject to other statutory requirements, such as those in the Wills Act 2007 and the Property Law Act 2007 where applicable.
Clause 6 confirms the existing law. In making a finding under this provision, the court would determine the legal consequences depending on the circumstances of the case. It is intended that a trust is not created until such time as property is transferred to the trust.