We recommend inserting a definition of “terms” into clause 9 of the bill. The definition would clarify that when “terms” is used in relation to trusts the meaning is broader than the terms of a trust deed.

Some express trusts do not have trust deeds. Those that do can also have oral terms, and in both cases there can be implied terms. The legislation covers each of these concepts and therefore a particular provision can relate to express terms, oral terms, or implied terms. Our definition clarifies that “terms” has each of these meanings and that the relevant meaning in a provision is what is expressly stated or, if not expressly stated, what the context requires.

We recommend replacing clauses 5(3)(a) and 5(3)(b) with new clauses 5(3A), 5(3B), and 5(3C). These changes would clarify that the legislation applies to all express trusts, despite the terms of a trust deed, unless:

• the provisions of the legislation listed in Schedule 2 can be modified or excluded by either express or implied terms of a trust, to the extent stated in the schedule

• the provisions of the legislation listed in Schedule 3 can be modified or excluded in relation to commercial trusts.

We recommend inserting new clause 19A to make it clear that a trustee has an obligation to have regard to the context and objectives of a trust when performing both their mandatory duties and their default duties.

We recommend deleting clauses 6(4) and 6(5). These general provisions are intended as guidance to help parties to a trust in understanding the bill’s provisions, and would be unnecessary with the changes recommended above.

We further recommend amending the title of Schedule 2 to reflect its relationship to proposed clause 5(3A). For consistency with trust law, we recommend amending the wording in clause 6(3), from “deliberately set up” to “intentionally established”. We consider “intention” to be the proper term as “deliberate” is not commonly used in relation to the settlement of trusts. We note that “intention” is common when referring to “three certainties” in trust law.

We recommend inserting into clause 9 definitions for “default duty” and “mandatory duty”. This change would assist with structural changes that we propose to Part 3 that would help clarify the interaction between a trust’s terms and this legislation.

For clarity and consistency, we recommend defining the term “lacks capacity” in clause 9, and using it instead of the phrase “incapacitated beneficiaries” throughout the bill. The original phrase as introduced could be interpreted to exclude minors, which we consider is not the intent.

As introduced, clauses 45 and 78 include a child in their definition of “incapacitated beneficiaries”, while clause 139 is unclear on this point, which is likely to cause ambiguity.

By defining “lacks capacity” to specifically include children, there would be consistency throughout the bill and definitions in multiple places would no longer be required.

To avoid ambiguity, we recommend inserting into clause 9 a definition of “power of appointment” as the ability to appoint or remove a trust beneficiary. In the bill as introduced, the term is used to mean three different concepts. The most common use of “power of appointment” in trust law relates to beneficiaries, and we consider it the appropriate definition to include in the bill. We further recommend amending clauses 63, 64, and 86 to clarify what is meant by the use of “power to appoint” in each context.

For consistency, we recommend inserting a definition of “security trust” into clause 9. As introduced, clause 9 contains a definition for “wholesale trust”. Both definitions are part of the “specified commercial trust” concept in clause 1 of Schedule 3. We consider it appropriate for both terms to be defined in clause 9.

We have retained the definition of “court” to mean the High Court of New Zealand. This may give greater confidence in the use of trusts, and avoid procedural and practical complexities with the introduction of concurrent jurisdiction. In addition, the Family Court has limited jurisdiction.

To avoid doubt, we recommend amending clause 15(1)(b)(ii) to make it clear that an express trust need not identify specific beneficiaries but could identify a broad class of beneficiaries.

Clause 16 would replace the rule against perpetuities and the Perpetuities Act with a simple maximum trust duration of 125 years. This period strikes the right balance between providing a higher degree of flexibility for settlors to dispose of properties as they choose, and the need to retain some form of limit on the duration of trusts.

Clause 16(6) sets out exceptions to the rule in clause 16(1) that the maximum duration of a trust would be 125 years. We recommend various amendments to this provision.

First, we recommend deleting paragraph (b) relating to retirement schemes as we consider it more appropriate to include the exemption for retirement schemes as part of the Financial Markets Conduct Act 2013. As we discuss in relation to Part 9 of the bill which amends that Act, proposed new section 155A(3) of that Act would allow managed investment schemes (which include retirement schemes) to continue indefinitely.

We recommend clarifying the reference to section DC 7 of the Income Tax Act 2007 in clause 16(6)(c) by inserting the word “superannuation” before “scheme”. We also recommend amending paragraph (d) by referring to an exempt employee share scheme (ESS) instead of to a share purchase scheme, in line with recent changes to the Income Tax Act.

To avoid the implication that clause 16(6)(b) limits the types of trust that may be exempt from the maximum duration rule, we recommend inserting paragraphs (e) and (f). These provisions would exempt trusts that, under another enactment or under common law or equity, are allowed to continue indefinitely.

We recommend inserting new clause 16A to make it clear how the new maximum duration rule would apply to resettlements. Under this provision, trusts for property settled on one trust and then resettled on another would not be able to last longer than 125 years from the date of the original settlement before being distributed.

As noted above,¹ we are recommending inserting new clause 19A to make it clear that a trustee has an obligation to have regard to the context and objectives of the trust when performing both their mandatory duties and their default duties.

The provision is intended to clarify that the current legal position continues under the bill. That is, the nature and extent of the trustee’s duties depend on the terms, context, and objectives of the particular trust.

As part of our proposed restructuring of Part 3, we recommend shifting clause 21 to become new clause 36A. We propose the addition of clause 36A(4) which defines “initial settlor”. This term is then used throughout the rest of the clause. We consider this clarification necessary to differentiate the duty that does not apply to parties to a trust who later settle property on to the trust.

We recommend amending clause 25 to include a reference to the terms of the trust. As identified in clause 19A the extent of the duties is determined by the context in which they exist. As introduced, the clause does not clearly show the role of terms of the trust. The redrafting of this clause also better distinguishes between a trust for beneficiaries and a trust for a permitted purpose in explaining separately how the duty applies to each type of trust.

As introduced, clause 31 is a default duty that could be modified or excluded requiring trustees not to bind or commit themselves to a future exercise or non-exercise of a discretion relating to the distribution of trust property. However, this duty is intended to be quite broad and not relate only to discretions regarding the distribution of trust property. Our proposed amendment would delete the reference to a discretion regarding the distribution of trust property. We believe this would make the duty sufficiently broad to meet the intent of the bill and reflect the current law.

As introduced, clauses 37, 38, 71, and 78 refer to “gross negligence”. The term is not defined in the bill as introduced and is not a commonly used legal phrase. To clarify the intent of the bill, we recommend inserting clause 40A to provide guidance on how a court is to consider gross negligence.

The bill provides that exemption and indemnity clauses in trust deeds must not limit or exclude a trustee’s liability for dishonesty, wilful misconduct, or gross negligence. Our proposed provision would clarify what factors the court must consider in determining gross negligence. This amounts to whether the trustee’s behaviour was so unreasonable that no reasonable trustee in that position would have considered the conduct to be in accordance with their role and duties. The provision contains a number of factors that the court must have regard to relating to the breach of trust, the trustee’s circumstances and characteristics, and the nature and purpose of the trust.

Clauses 45 to 51 set out a process for determining what information must be provided to beneficiaries and when, to ensure beneficiaries have sufficient information. Clause 50(3) provides for circumstances where a trustee can delay the giving of basic trust information.

As introduced, clause 51 would enable trustees to require beneficiaries to pay the reasonable cost of giving information. However, the clause does not take into account that the information could take considerable resources and expense for a trustee to collate. We recommend inserting clause 51(2) to provide that a trustee may require a beneficiary to pay some or all of the cost before giving information. Our amendment would allow a trustee to prevent any risk of incurring losses if the beneficiary failed to pay costs.

Clause 76 deals with the position of the party taking a disposition of trust property. It is a modernised version of section 22 of the Trustee Act 1956, as amended in 1968. It addresses the legal position of third parties who acquire assets from a trustee as a result of a trustee’s breach of trust.

We consider that this provision is inconsistent with the principles of common law and equity that apply to wrongful dispositions of trust assets. It is also inconsistent with the modern policy of deterring money-laundering of stolen funds.

We recommend replacing clause 76 with a version that accords more closely with the original section 22 of the Trustee Act 1956, albeit in modernised form. The redrafted provision means that, if a trustee purports to exercise a power to sell or mortgage trust property, the purchaser or mortgagee would not be obliged to look into why the trustee needs the money or how the money is later used.

As discussed in relation to clause 9, we recommend amending the phrase “power of appointment or removal” in clause 86(4) to “power to appoint or remove a trustee”. This would avoid confusion, because the bill as introduced used the phrase in multiple contexts.

Clause 93(3) deals with how a person nominated as a trustee could reject the appointment. We recommend amending this clause to make it clearer how the rejection would work in practice.

As introduced, clause 96(2) provides for the personal representative of a deceased trustee to act on their behalf in a situation where the sole trustee or the last surviving or continuing trustee dies. We recommend amending clause 96(2)(a) to ensure it is clear that the representative could only act on the deceased trustee’s behalf for a reasonable period. This would make it clear that the provision is intended as a temporary measure.

We recommend replacing clause 97 and inserting new clauses 97A and 97B to set out more comprehensively how the power to remove a trustee would work, and when a person with this power could act under the terms of the trust or under this legislation. This would avoid some ambiguity in the bill as introduced regarding the interaction between the powers to remove trustees in the bill and any such powers in the terms of a trust.

Our proposed clause 97 would make it clear that a person nominated in the terms of the trust as having the power to remove a trustee could choose to exercise this power either under the power in the terms of the trust or under the statutory powers in clauses 97A and 97B. Another person who exercised that power because there was no nominated person or because that person was not available (under clause 86(1)) could only use the statutory powers (and grounds) to remove a trustee.

For clarity, we propose two separate clauses: 97A (dealing with the grounds for compulsory removal) and 97B (dealing with the grounds for optional removal). However, their content is unchanged from the bill as introduced.

In clause 99(3)(b)(i), we recommend amending the period of notice required for the removal of a trustee to 20 working days after the trustee receives it. As introduced, the bill allowed 21 working days. This was an unusual period, and could cause confusion. Changing it 20 working days, which equates to four working weeks, would be clearer.

We recommend inserting new clause 108(2A) to clarify that this provision would not affect any lien to which a trustee may otherwise be entitled. The proposed amendment would ensure that a lien would not be considered inconsistent with the provisions of the legislation and would fall under the preservation of equitable rules under clause 5(2)(b)(iii).

We recommend amending clause 115(3) to remove the definition of “lacks capacity”. Our earlier recommendation to include a definition of “lacks capacity” in clause 9 of the bill would make it unnecessary to include the definition here.

Clause 119 relates to the procedure of the court when reviewing an action, omission, or decision of a trustee under clause 118. We recommend amending this clause to remove the apparent requirement that the trustee must appear in court before an order can be made. As introduced, the wording does not provide for a situation in which a trustee fails to appear. The High Court rules provide a process for hearing cases in the absence of the defendant. However, the wording of clause 119(3) would arguably prevent this from applying. We recommend deleting “after hearing the trustee” in clause 119(3). We consider this unnecessary as it is implicit that the court is required to hear the trustee, provided they are not absent.

We recommend inserting clause 130(5) to clarify that, where a receiver has a trustee power, the trustee cannot also exercise that power. Under current law the default position is that receivers appointed under the clause have the power over trust assets to the exclusion of trustees. We do not consider it the bill’s intent to change this presumption.

As introduced, clause 131 uses the word “commission”. We recommend replacing it with “remuneration”. We consider this a modern and accessible legal phrase that has a broad meaning covering both a commission and a fee.

We recommend amending the defined terms in clause 137 to more appropriately cover all types of alternative dispute resolution (ADR) and to distinguish arbitral awards from other alternative dispute resolution outcomes.

We recommend inserting new clause 138(1AAA) to clarify that clause 138 applies to trusts when no specific provision for ADR is contained in the trust deed. This would clarify that a trustee has the power to refer a matter to an ADR process, with the agreement of the parties, even where there is no specific provision in the terms of the trust. We believe this amendment would clarify the bill’s intent.

In clause 139, we recommend replacing the wording “incapacitated” with “lacks capacity” for the reasons discussed earlier in this commentary. Our amendment would clarify that the bill does not intend to exclude a child from this provision.

We recommend amending clause 139(1)(b) in light of our amendment to clause 137, which made a distinction between arbitral awards and other ADR settlements. We do not recommend adding “arbitral award” to clause 139(1)(c) as an arbitral award does not need to be approved by the court in order to be binding.

In addition, parties to an arbitration already have recourse to court through mechanisms in other legislation if they want to contest the outcome. If a representative is appointed to act on behalf of a beneficiary, in an ADR process not involving arbitration, it will be necessary for the resulting ADR settlement to be approved by the court.

We recommend inserting new clause 139(1A) to stipulate that a representative appointed by the court must act in the beneficiary’s best interests, and to empower the court to set the terms of the representative’s appointment. It would also permit the costs of the representative to be paid out of the trust if appropriate. We consider this to be a suitable measure so a party to a trust who “lacks capacity” has representation through an ADR process.

We recommend inserting clause 142A to clarify that when arbitration is used as an ADR process under the bill, the Arbitration Act applies to the arbitration process.

Similarly, we recommend inserting clause 155B to amend the Arbitration Act with a provision to clarify that trust legislation would apply to some arbitration cases.

We consider that these amendments would clarify the interaction between the two Acts, and ensure that the appropriate procedure is used for the relevant ADR process in the bill.

We recommend inserting clause 143A to make it clear that a financial product transferred to the Crown and any proceeds from the sale or conversion of financial products transferred to the Crown is trust money. We further recommend moving clause 143(6) of the bill as introduced to become new clause 143A(1). This amendment would clarify and update the bill’s provisions.

We recommend amending clause 153(2) so that transitional regulations to facilitate or ensure an orderly transition to the new legislation may be made, or may continue in force, for 3 years after the bill comes into force, rather than the 2 years in the bill as introduced. The additional year would provide some further leeway to ensure that this legislation can apply appropriately to existing trusts. The 3-year transitional period would be consistent with other Acts, such as the Land Transfer Act 2017.

We recommend inserting new subpart 1AAA in Part 9 to insert new section 10A in the Arbitration Act. This new section would be reciprocal to clause 142A of the bill. It would act as a signpost in the Arbitration Act that, where arbitration relates to a trust matter, the relevant provisions of this legislation are applicable.

Clauses 157 and 161 of the bill would insert new sections 110A and 155A into the Financial Markets Conduct Act. The proposed sections relate to the application of the bill’s provisions to certain trusts for financial products. Proposed new sections 110A(1)(c) and 155A(1)(c), in particular, relate to trusts for financial products in circumstances where the Financial Markets Authority has granted an exemption or where an exclusion under Schedule 1 of the Financial Markets Conduct Act applies.

To clarify and improve the flexibility of the provisions in the bill that relate to these trusts, we recommend replacing new sections 110A(1)(c) and 155A(1)(c) with the proposed amendments in clause 162 and proposed clauses 163A and 163B.

As introduced, clause 162 would allow regulations to disapply provisions of this legislation to trusts that are regulated by the Financial Markets Conduct Act. Those trusts are already subject to detailed governance obligations under that Act or by regulations. We recommend amending the clause to extend this power to trusts that are excluded under Schedule 1 of the Financial Markets Conduct Act.

We also recommend inserting new clause 163A, which would extend the Financial Markets Authority’s power under the Financial Markets Conduct Act to grant exemptions from provisions in this legislation when it is otherwise granting exemptions from requirements of the Act.

These powers are subject to procedural safeguards in both cases to ensure the powers are exercised appropriately. An example of a safeguard is the requirement to have regard to the purpose and principles of this legislation and to ensure that exemptions are not broader than is reasonably necessary.

We further recommend amending the wording in proposed section 155A(1) to ensure it aligns with how a trust may be used under the Financial Markets Conduct Act, and to include “bundled trusts”. These were not captured by the previous provision, but should be as they are managed investment schemes.

We recommend deleting “that is a retirement scheme” from proposed section 155A(3). This would reflect that exemptions from the maximum duration rule for trusts are applied to all managed investment schemes.

We recommend inserting clause 163C to insert new clause 8 in Schedule 3 of the Financial Markets Conduct Act. This would exempt “approved Schedule 3 schemes” from clause 14 of this bill. Clause 14 as introduced requires that a sole trustee cannot be a sole beneficiary. The Financial Markets Conduct Act provides for single-person, self-managed superannuation schemes that are set up as a trust.