Is your Family Trust still fit for purpose?

Common Trust Deed Issues

The trust deed is the foundational legal document for your family trust. But many older deeds no longer reflect modern requirements or intentions. Common issues include:

1. Lack of flexibility to make changes or adapt to new circumstances
2. Outdated powers to add beneficiaries or appoint trustees
3. Narrow beneficiary classes, excluding future family members or stepchildren
4. Vesting dates that limit the long-term effectiveness of the trust
5. Unclear or outdated provisions that conflict with modern trustee obligations

A trust deed that does not match your intentions or current legal standards can lead to disputes, compliance risks, tax inefficiencies, or an ineffective trust structure.

The Trusts Act 2019: What Changed?

The Trusts Act 2019, which came into effect in January 2021, replaced the old Trustee Act 1956 and introduced a modern framework for trust administration.

Key changes include:

• Codification of trustee duties, both mandatory and default
• Greater transparency and information rights for beneficiaries
• Clearer rules on documentation, record keeping and dispute resolution

This legislation significantly increases the obligations placed on trustees and may require changes in how your trust is managed.

Mandatory Trustee Duties

Under the Trusts Act 2019, certain duties must be followed by all trustees. These include:

• Knowing the terms of the trust
• Acting in accordance with those terms
• Acting honestly and in good faith
• Acting for the benefit of the beneficiaries
• Using trustee powers for their intended purpose

These duties cannot be modified or excluded in the trust deed.

Default Trustee Duties

The Act also sets out default duties, which apply unless specifically excluded in the deed. These include:

• Duty of care
• Duty to invest prudently
• Duty not to exercise powers for personal benefit
• Duty to avoid conflicts of interest
• Duty of impartiality between beneficiaries
• Duty to act without reward
• Duty to act unanimously with co-trustees

Trustees must understand and comply with these duties. If your trust deed was drafted before the Act came into force, it may not address these adequately.

Beneficiary Access to Information

Another key change under the Trusts Act 2019 is the requirement to provide basic trust information to beneficiaries, such as:

• Confirmation that they are a beneficiary
• Trustee names and contact details
• A copy of the trust deed or terms of the trust

Trustees are also required to make other trust information available upon request, unless there is a valid reason to withhold it. This shift increases transparency, ensuring beneficiaries are informed about their rights, but also adds administrative responsibility.

Memorandum of Wishes

A Memorandum of Wishes is a non-binding document where the settlor outlines how they would like the trustees to manage the family trust, particularly after their death.

While not legally enforceable, it provides:

• Clarity on how beneficiaries should be treated
• Guidance on distributing assets fairly
• Notes on earlier financial support to some family members
• Insight into the settlor’s values and intent

It’s wise to keep this document updated and aligned with your current situation and goals.

Powers of Attorney

While not directly part of the family trust structure, Powers of Attorney ensure your personal and financial affairs are managed if you lose capacity.

There are two key types:

• Enduring Power of Attorney (EPA) for property – covers financial matters
• EPA for personal care and welfare – relates to health and wellbeing

You may also have a General Power of Attorney, which ceases if you become mentally incapable. These documents should be reviewed alongside your trust to ensure continuity of decision-making.

Other Areas of Risk

Trusts do not exist in isolation. Several related factors can affect the robustness of your trust:

• Outdated or conflicting wills
• Personal assets not transferred into the trust
• Unsecured loans to businesses or family members
• Misaligned business structures

A comprehensive review helps identify and address these risks, including potential tax liabilities arising from unsecured loans or misaligned business structures, which may trigger tax obligations under the Income Tax Act 2007 and affect the overall tax efficiency of the trust.

Next Steps: Review and Strengthen Your Trust

If your trust has not been reviewed in the past few years, or if your family or financial situation has changed, it’s time to act. Key steps include:

• Reviewing the trust deed considering the Trusts Act 2019
• Confirming that trustee appointments and duties are up to date
• Ensuring beneficiaries are correctly recorded and notified
• Updating your Memorandum of Wishes and Powers of Attorney
• Securing proper documentation and records

How Drumm Nevatt can help

At Drumm Nevatt & Associates, we work with trustees and families across New Zealand to ensure their trusts are compliant, relevant, and effective.

Our experienced team can assist with:

• Independent trust reviews
• Trustee education and advice
• Drafting or updating trust documents
• Administering and recording trustee decisions
• Acting as professional or independent trustees where needed

We believe that prevention is better than cure. A robust trust is not just a legal structure – it’s a tool to protect your family’s future. If you’re unsure about the state of your trust, we’re here to help.

Get in touch with us today to discuss your trust and ensure it’s working for you.