The Law Commission is recommending a new law to govern trusts that it says would spell out the core characteristics of a trust and requirements for creating a trust.
It says the Act it's proposing would make it clear what was, and what was not, a trust. It would also provide a summary of the basic obligations that trustees owe to beneficiaries.
"Under provisions recommended by the Commission, if a trust has purportedly been established, but the reality is that the person who established it continues to manage the trust assets as if they are their own personal property, the new Act would make it clear that the court could find that a trust has not in fact been established," said Law Commission President Grant Hammond.
He also said the Commission was emphasising that its recommendations don't undermine legitimate uses of trusts, with the new Act preserving the flexibility and usefulness of the trust.
"The Law Commission is recommending a new Act clarifying the legal rights and duties of New Zealanders who use trusts to manage their assets," said Hammond.
"If enacted, the new Trusts Act would be relevant to tens of thousands of New Zealanders who use trusts as an alternative way of holding and managing property or other assets. It is estimated New Zealand has up to 500,000 trusts used for a variety of purposes ranging from owning the family home, through to use in business, by charities, and by many, including Māori, to hold land and other assets collectively."
Hammond noted trusts form core a part of New Zealand’s economic, social and legal infrastructure, meaning it's vital for the law on trusts to be clear and accessible to ordinary people who use them. The current law was outdated with much of it difficult to understand.
“The nature of the trust relationship and its legal implications are not always well understood by the parties, which is not surprising given the age and complexity of the current law," said Hammond.
“While people are entitled to hold and dispose of their property as they wish, those setting up trusts cannot simply receive the benefits of the arrangements, without also having to take on the essential features of the trust that confer those benefits."
Hammond said it was in the public interest to both have a modern statute giving trustees and others guidance as to how a trust should be managed, and to increase the accountability of trustees.
The Commission is also recommending giving the Family Court a wider ability to deal with trusts in order to do justice when resolving relationship property disputes when couples separate.
"Under the proposed reform, the Court, where necessary, would be able to include the relationship assets that have been placed in a trust by one partner in the property to be divided between the couple," Hammond said.