New Zealand Law Society - Need for genuine trust expertise has never been greater

Need for genuine trust expertise has never been greater

Partner, Head of Private Wealth at Dentons Kensington Swan, Henry Brandts-Giesen writes about the increasing need for contemporary New Zealand trusts practitioners who are genuine experts in the law, governance and administration of trusts.

By Henry Brandts-Giesen

In the past three decades the number of trusts in New Zealand has grown exponentially for reasons I have never been able to understand.

Many people in New Zealand have been advised into setting up trusts in circumstances where they get little (if any) benefit from the arrangements. Where there have been good reasons for the trusts being set up they are often governed and administered in such a way that they may not withstand scrutiny.

With the vast number of legacy trusts existing in New Zealand there is an increasing need for and recognition of contemporary New Zealand trusts practitioners who are genuine experts in the law, governance and administration of trusts.

This need for expertise will become even more important on 31 January next year when the new Trusts Act 2019 takes effect. This act aims to make trust law simpler, more transparent and more accessible to the general public. It will also make trustees more accountable to beneficiaries and should have the effect of diminishing the typically New Zealand practice of settlors directing how trusts are governed and administered.

Increasingly, well-advised children of people who set up trusts in the past 30 years or so are scrutinising the decisions of the trustees and finding defects in governance which could lead to legal review and, ultimately, transactions being invalidated and trustees and advisors being found personally liable.

Furthermore, age-related issues are surfacing as wealth is transferred between generations and children of the settlor are engaging with the trustees appointed by their parents. Historical errors are coming to light and causing real and expensive problems for all concerned.

A consequence of this is an increasing number of contentious and “semi-contentious” trust related issues that need to be resolved either by negotiated settlement or, ultimately, the High Court.

Contemporary New Zealand trusts practitioners are now dealing with issues such as trusts holding highly valued, sophisticated and complex asset classes, defects in trust deeds, a lack of independent governance, poor record keeping, inadequate administration, and intra-family conflicts. Furthermore, the ever changing and increasingly onerous regulatory and fiscal environment (for example, foreign trust disclosure rules, FATCA, CRS, AML/CFT and the Brightline Test) adds further challenges and requires us to have some regulatory expertise as well. These are only likely to increase as governments around the world look at new ways to gather revenue and monitor their citizens.

As a consequence it is becoming increasingly necessary for contemporary New Zealand trust practitioners to bridge the non-contentious and contentious specialisms in a manner that was hitherto not common.

Applying to the High Court for directions or orders relevant to the governance and administration of the trust is becoming more common.

An application of this nature may be routine and simply seek to rectify an obvious defect in drafting or regularise some administrative or procedural anomaly. Alternatively, the application may seek approval to a course of action that is not approved by the beneficiaries or attempt to deal with a situation where a trustee has breached fiduciary obligations (such as acting ultra vires, refusing to resign when it is appropriate to do so, or mismanaging trust assets).

Dealing with these types of situations requires the contemporary New Zealand trust practitioner to apply specialist technical knowledge and expertise – but also take a pragmatic approach to resolve the dispute in a manner that best serves the interests of the client. In many cases a general civil litigator and longstanding trusted advisors to a family can still have important roles in this process and should not be usurped, but almost certainly a trusts law expert should be involved to provide technical expertise. In many cases, due to the number of parties with misaligned interests, several trusts experts may be needed to dispense the necessary independent advice.

Generally, in my experience, the approach should not instantly be adversarial but rather an inquisitorial approach. A demonstrably reasonable approach generally leads to better outcomes. Unfortunately, this approach is not always taken by lawyers who are not expert in trust matters and it can reflect badly on their clients, whether they be fiduciaries or beneficiaries.

Trusts are created and governed by the law of equity, which is a system based on principles rather than rules. This is actually a very different environment to that of the general law which is largely based on rules. Nuances such as the difference between formal validity and essential validity in the context of fiduciary powers are frequently misunderstood.

With the growth and increasing complexity of the private wealth sector and the enactment of the Trusts Act 2019 the need for genuine expertise has never been greater.

Henry Brandts-Giesen is Partner, Head of Private Wealth, at Dentons Kensington Swan.

Lawyer Listing for Bots