By Gareth Vaughan
Proposed new trust laws won't necessarily make it easier to "bust trusts" and nor are the Law Commission's proposals the result of international pressure to open New Zealand trusts up to greater scrutiny, says a leading trust lawyer.
Chapman Tripp senior partner Arthur Young, whose areas of focus include trust law and private client advisory, told interest.co.nz in a Double Shot interview it wasn't a focus of the proposed new laws to make it easier to trace what people really actually own through trusts they're beneficiaries of.
"The focus of the legislation is more to achieve a regime where beneficiaries have a clearer standing, greater access to process and ready intervention from time to time on the part of the law," said Young.
"Will trust busting so-called via relationship arguments then increase? Perhaps but not greatly. Will it be easier for people to attack trusts than they have been able to in the past where there has been business failure and insolvency? Not obviously. I don't think there's any real change in that area."
International pressure 'not the driver of change'
And nor was any international pressure a driving force behind the changes, Young said. New Zealand's Anti-Money Laundering and Countering Financing of Terrorism Act, which came about after pressure from the Financial Action Task Force which is an inter-governmental body established by the G7, became law on June 30. Trusts are expected to come under greater scrutiny from banks under this Act.
And the Government is currently negotiating a Foreign Account Tax Compliance Act (FATCA) tax information agreement with the United States. FATCA requires overseas financial institutions such as New Zealand banks, life insurers and managed funds, to enter into agreements with the US’s Internal Revenue Service and US Treasury to provide details about the affairs of their US clients.
"I don't believe the international pressures and those originating from the OECD and elsewhere, are actually a feature of the Law Commission's thinking," said Young. "We've made submissions to the Law Commission right throughout on all its introductory papers and these kinds of international fiscal considerations hadn't ever featured in any of their commentary. So I think it's coincidental."
"It is an important consequence though that if the new law comes in it will apply equally to New Zealand foreign trusts, which as we all know are a special animal here because New Zealand happens to be a favourable jurisdiction for a series of unrelated technical reasons," Young added.
One interesting example of New Zealand foreign trusts is Equinor Trust Limited. As interest.co.nz reported in May Equinor claimed to be responsible trustee for almost 150 trusts, on behalf of some of the world's wealthiest individuals and families located in all parts of the world, with assets "conservatively" worth more than €5 billion being boats, planes, real estate, bankable assets and share participations.
Spelling out the core characteristics of a trust
The Law Commission last week said it was 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 laws 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.
Hammond also said the Commission was emphasising its recommendations don't undermine legitimate uses of trusts, with the new Act preserving the flexibility and usefulness of the trust.
If enacted, Hammond said the new Trusts Act would be relevant to tens of thousands of New Zealanders who use trusts to hold and manage property or other assets. The Law Commission estimates 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, added Hammond.
Young said the main proposed changes for trust beneficiaries include that the law will be more accessible.
"At the moment the law can be found only in complicated text books or a very archaic or extremely narrow statute, - the 1956 Trustee Act," said Young.
Additionally, beneficiaries will be recognised more clearly in the legislation than in previous law. And they'll have more ready access to the court to challenge decisions by trustees.
"They'll need to put forward a prima facie case and show that there is a substantial, not trivial issue, but then the court will have a wider jurisdiction and, I think, a greater willingness to weigh in and assess the issues between the beneficiaries and the trustees," said Young.
Clarifications are also proposed to trustees duties with distinctions between mandatory duties, presumed to be applicable to all trusts, and default duties that can be varied.
70 years added to the life of a trust
The Law Commission is also proposing to almost double the life of trusts to 150 years from the current 80 years.
"Some jurisdictions abroad have no time limits on new trusts," Young said. "I think the 150 years is a compromise. I think it's a sensible compromise and it's one that I support."
He suggested 80 years, when there can be genuine long-term inter-generational consideration within a family such as farm ownership, was too short and 150 years an appropriate time.
A response from the Government to the Law Commission's proposals is expected by March 31 next year.
"Hopefully that will be positive (and) a new statute or new bill will then come before Parliament," Young said. "As a trust practitioner, I'd be very keen to see the Law Commission's good work brought through to conclusion and hopefully in the life time of this Parliament."