Trust Law under review – how it might affect your Trust …

Nearly a decade ago, charitable trusts made up around 15 percent of not-for-profits in New Zealand, with the majority of not-for-profits being unincorporated societies. This suggests that charitable trusts may be under-utilised, possibly because the law surrounding them is seen as being too complex.

The Law Commission is currently reviewing the law of trusts, and wants to modernise, streamline, and clarify the law. The review is in three stages, and the Law Commission has released a summary of its proposed approach for stage one.

While this stage has focused more on private express trusts (such as family trusts), the Law Commission’s proposed changes to the law are also important for trustees of charitable trusts. Stage two of the review will be focused more specifically on charitable trusts.

Here is a summary of the stage one proposals that may affect you as a trustee of a charitable trust:

1. As part of clarifying the law of trusts, the Law Commission proposes setting out legal principles such as trustee duties clearly in statute, so that people can easily see what is expected of them. The Law Commission also proposes that a new statute contain provisions that would apply to every trust, and others that could be overridden by individual trust deeds (like the way the Companies Act operates).
2. The fundamental trustee duties that the Law Commission proposes must be followed are:
   • A duty to understand and follow the terms of the trust;
   • A duty to account to the beneficiaries for trust property; and
   • A duty to exercise powers for a proper purpose.
3. Duties that an individual trust deed can modify include a duty to avoid conflicts of interest and a duty not to profit from the trusteeship. This means that trust deeds could be adapted to cases where, for example, close family are involved and conflicts of interest sometimes become murky.
4. The Law Commission also proposes setting out clearly the ‘administrative functions’ that can be delegated by trustees. This may assist larger charitable trust boards in particular to understand what functions can be delegated to the chief executive officer or other employees.
5. Corporate trustees are used less commonly by charitable trusts; however any charitable trust that does have a corporate trustee should take note of some important proposed changes. The Law Commission proposes that directors of corporate trustees be made liable where there has been a breach of trust by the corporation. It also proposes that directors of a corporate trustee have the same obligations to beneficiaries as if they were ‘ordinary’ trustees.
6. Importantly for all trustees, the Law Commission proposes that courts should be able to review actions a trustee may take, not simply actions the trustee must take. It also proposes that settlors should be able to apply to a court regarding trustee actions, which would mean that a settlor of a charitable trust could take action to enforce a trust deed.

If you have any questions regarding your charitable trust, or are thinking of setting one up, please contact us on 0800 733 424.