New Trusts Act 2019 – What Trustees Need to Know for 2021
The long-awaited Trusts Act 2019 (Act) has arrived! The Act aims to update trust law and make the law accessible to all (not just lawyers).
The Act will come into force on 30 January 2021, and will then apply to all existing written trusts, as well as any new written trusts established. It could also apply to statutory trusts or other types of non-express trusts (such as constructive or equitable trusts) if the Court decides that the Act should apply.
If you are a trustee of a written or statutory trust, or are considering becoming one, we summarise your duties from 2021 below.
Mandatory duties (cannot be “contracted out” of within the terms of the trust deed)
A trustee must:
- Know the terms of the trust;
- Act in accordance with the terms of the trust;
- Act honestly and in good faith; and
- Hold/deal with property and act for the benefit of the beneficiaries, or to further the permitted purpose of the trust, in accordance with the terms of the trust.
There are other mandatory duties to be aware of, including retention of core documents, keeping beneficiaries informed and making information available to beneficiaries on request.
Default duties (can be “contracted out” of within the terms of the trust deed)
A trustee must:
- Exercise the care and skill that is reasonable in the circumstances having regard to any special knowledge or experience that the trustee has or would reasonably be expected of the trustee in light of their course of business or profession;
- Exercise care and skill that a prudent person in business would exercise in managing affairs – also known as a duty to invest prudently (having regard to any special skill and experience that the trustee may have or would reasonably be expected to have);
- Not exercise a power of a trust either directly or indirectly for their own benefit;
- Consider actively and regularly whether the trustee should be exercising the trustees powers;
- Not bind or commit trustees to future exercise or non-exercise of a discretion;
- Avoid a conflict of interest between a trustee’s interests and the interests of the beneficiaries;
- Act impartially to beneficiaries and not be unfairly partial to any beneficiary or group of beneficiaries;
- Not make a profit from the trusteeship of the trust
- Not make any reward for acting as trustee, but this does not affect the ability to be reimbursed for legitimate expenses and disbursements; and
- Act unanimously (if more than one trustee).
The Court has the ability to review an act, omission or decision (or proposed act, omission or decision) of a trustee in certain circumstances. The Act also introduces alternative dispute resolution (ADR) provisions. ADR processes are ways to resolve and determine disputes outside of court, such as mediation and arbitration. In certain circumstances, the Court may ‘force’ parties to go to ADR in relation to trust disputes.
Why do I need to know this now?
The Act provides for an 18-month transition period from July 2019 to January 2021 to allow trustees and beneficiaries to become familiar with the new legislation and update their trust structures and deeds. 18 months may sound like a long period, but in reality, it takes time for both trustees and beneficiaries to consider the changes, take advice and discuss/agree on necessary amendments to the trust deed.
A key area for consideration is that of default duties – should they apply, should they be excluded in full or in part, how this will affect the beneficiaries to be able to hold the trustees to account for future decisions. Some scenarios in which we envision changes will need to be made:
- Professional trustees:
o Defining the scope of their experience/skills;
o Clearly allowing the professional trustee to be remunerated for providing professional skills (such as accounting or legal services); or
o Whether the professional trustee should become a “special adviser” to the trust as opposed to a trustee, or alternatively whether a special adviser should be appointed.
- Trustees who are also beneficiaries:
o Modify duties not to act for own benefit or act in conflict of interest situations.
At Holland Beckett Law, we can advise you on how the Act will impact you and help you through this process to prepare you and your trusts for the new regime.