Offshore Trusts Report: New Zealand
Review of the Law of Trusts
In 2009, the Law Commission of New Zealand was tasked
with reviewing the Trustee Act 1956 and law of trusts generally.
In particular, the Law Commission is taking a close look at the
use of family trusts in New Zealand where it has been estimated
that there is one for every 18 people, compared to one for 294 in
The government suspects that the use of trusts to
avoid liabilities in New Zealand has increased considerably in recent
years and the Victoria University of Wellington Tax Working Group
has estimated that the ability to shelter income in trusts cost
the government roughly NZD300m in tax revenue in 2007.
The Commission is tackling the review in 3 stages:
Stage 1 examines the Trustee Act 1956, the Perpetuities Act 1964
and trust law generally; Stage 2 considers the Charitable Trusts
Act 1957; and Stage 3 looks at the trustee companies legislation.
A series of Issues Papers has been released by the
Commission on different aspects of trusts law. This information-gathering
and consultation phase of the project is designed to inform the
conclusions and recommendations of the Commission in its final report,
which is expected in 2012.
While the first issues paper was primarily a background
paper, the second issues paper, published by the Law Commission
on December 20, 2010 focussed on the uses of family trusts in New
“We’re interested in why people set up
family trusts, and whether there should be limits on their use,”
said Commissioner George Tanner. “New Zealanders seem particularly
keen on trusts. Although we have no definite record of numbers of
trusts, it seems that at least one in every 18 people in New Zealand
has a trust.”
The second paper examines situations in which the
law will “look through” the use of a trust, and asks
questions about whether some purposes of trusts are more acceptable
“This review is a big project. At this stage,
we’re interested in gathering as much information as we can,”
said Tanner. “We’d like to hear views from a wide range
of New Zealanders – people who set up trusts, trusts practitioners,
trustees and beneficiaries.”
The third Issues Paper addresses the rule against
perpetuities and the revocation and variation of trusts, and the
fourth paper deals with the role of trustees.
Released on June 30, 2011 under the title ‘The
Duties, Office and Powers of a Trustee,’ the fourth paper
sought views on important issues relating to the nature and day-to-day
operation of trusts, with a core focus on the duties that trustees
owe to beneficiaries.
Commenting on this Paper, Commissioner Tanner said
that “the obligations owed in the trustee/beneficiary relationship
are central to the concept of a trust, yet many trustees may not
be aware of what the law requires of them. This paper asks whether
more clarity is needed regarding what the duties of trustees are.
Should the duties be set out in a statute in the same way that company
directors’ duties are?”
The Paper notes that many of the duties of trustees
that exist in law can be overridden by the terms of a trust deed.
This means trustees can avoid being liable for failing to properly
carry out such duties.
“We want to know whether the law should go
further in holding that there are certain duties that cannot be
excluded by these exemption clauses. Which duties are so fundamental
to what makes a trust a trust that trustees should always be liable
for carrying them out? Should there be limits on what exemption
clauses can do?” Mr Tanner asked.
The paper also discusses the rules relating to how
trustees are appointed and removed, and whether there should be
restrictions on the types of people that may become trustees. The
Commission is looking at the powers that a trustee is given under
the Trustee Act, such as dealing with trust property, investing,
and delegating functions. It asks whether the law is effective in
these areas or whether it can be modernised and improved.
The Law Commission’s fifth Issues Paper, published
on December 19, 2011, sought views on a range of trusts matters
that focus primarily on ways to make it easier for beneficiaries
to hold trustees accountable. Entitled ‘Court Jurisdiction,
Trading Trusts and Other Issues’ this paper addresses practical
issues regarding mechanisms for enforcing trustees’ obligations.
The Commission is concerned that the only way of resolving disputes
between trustees and beneficiaries is for parties to go to the High
Court. The paper asks whether it may be appropriate for the District
Courts or Family Courts to exercise more powers under the Trustee
President of the Commission, Sir Grant Hammond, said
that the High Court may not be the best place for the resolution
of some trust disputes. “High Court cases can be costly, and
may exacerbate damage to family relationships. On the other hand
trust law issues can be complex and the High Court may continue
to be the best option. We are interested in people’s views
about whether there would be benefits to expanding the jurisdiction
of the District Courts or Family Court to consider trust matters.”
The Commission also looks at whether an approach that
takes some of the powers to resolve disputes in trust matters out
of the hands of the courts is possible. “A trusts ombudsman
or tribunal may have considerable benefits as a lower-level, more
accessible decision-maker” said Sir Grant, although the Commission
recognises that the costs of such an option may prove prohibitive.
The paper also covers trading trusts, another area
where reforms may be needed to enforce trustees’ obligations.
Trading trusts are used to operate a business and often the trustee
is a limited liability company. Sir Grant said there is scope for
the trading trust model to be used to frustrate creditors.
“Creditors may not even be aware that the company
they are dealing with is a trustee, a fact which may affect their
prospects of recovering their debt,” said Sir Grant. “Also,
beneficiaries may be left out of pocket when there is a breach of
trust as the corporate trustee may have insufficient funds to compensate
The Commission asks whether reform is required or
whether the obligation should remain on creditors to protect themselves.
The Issues Paper has chapters covering:
The High Court’s general supervisory jurisdiction in
respect of trusts, including the powers exercised in breach
of trust cases and the Court’s intervention where trustees
exercise discretionary powers;
A possible expansion of the District Courts’ and Family
Courts’ jurisdiction in respect of trusts;
A new mechanism for trust dispute resolution, such as an ombudsman,
tribunal or commission;
Facilitating greater use of ADR in trusts;
The interaction of trading trusts, creditors and beneficiaries,
and insolvent corporate trustees;
The possibility of a register of trusts; and
Trustee service providers.
The next stage in the Commission’s trusts project
will be a paper in 2012 outlining its preferred approach across
the range of possible reforms to trust law, based on submissions
comments on the Issues Papers, consultation and further research.
The paper also will invite submissions.
“Given the wide-ranging, complex nature of this
project, we think it is appropriate to provide the public with further
opportunity to comment on concrete proposals for reform of the law
of trusts before the Commission releases its final report and recommendations.”
said Sir Grant.