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Agreement with draft Trust Bill policy objectives

09 February 2017

The New Zealand Law Society says it agrees with the policy objectives of the exposure draft of the Trusts Bill, but notes the risk that efforts to restate existing statute and common law in the new Act may result in the legislation being too prescriptive.

The policy objectives are to update the Trustee Act 1956 and introduce plain language legislation that simplifies the drafting of trust deeds, facilitates the efficient operation and administration of trusts and the resolution of trust-related disputes.

In comments provided to the Ministry of Justice on the draft bill, the Law Society says a hallmark of trust law is its flexibility and ability to cater to a wide range of circumstances and requirements.

"Overly prescriptive provisions may impact on how the common law (developed incrementally by judges) continues to develop in the area of trusts in New Zealand," it says.

"A balance needs to be struck between flexibility (allowing the law to evolve as necessary) and reducing complexity (promoted by clear rules) for settlors, trustees and beneficiaries."

The Law Society says the draft in part codifies a number of common law principles, which it considers will make trust law more accessible to settlors, trustees and beneficiaries.

It recommends redrafting the section setting out the purpose and scope of the bill, to remove the purpose of "setting out the core principles of the law relating to trusts". The rationale for this is so that the law of trusts retains its flexibility. Legislation which is held out as stating the "core principles" may lead to rigidity and stifle the evolution of the law. Addition of another purpose: "making trust law clearer while maintaining the flexible nature of trust law" is also recommended.

The Law Society warns that there could be difficulties if - contrary to the ministry's stated assumption - there is a need to amend older trust instruments.

"This is because many older trust instruments do not include a power of amendment. The only way to change the nature of these trusts is to bring the trust to an end and distribute to one of the beneficiaries who immediately gifts everything onto the new trust in a modern form.

"When this technique is followed, there is a completely new trust and completely new settlement of property on that trust. Therefore there is likely to be some cost associated with the changes to the law."

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Last updated on the 9th February 2017