The concept of what a Trust is has caused confusion for many years. This confusion has led to the introduction of a new trust Act with further changes to come.
The changes introduced by the Trusts Act 2019 came into effect on 30 January 2021. The Act aims to make trust law more understandable with increased trustee obligations and greater transparency of trust assets and liabilities to beneficiaries.
The Act not only formalises what was already part of routine best practice trust administration, but adds a layer of additional requirements to disclose information to every beneficiary (or their parent or guardian if they are under 18).
The additional disclosure includes:
- that they are a beneficiary of the trust
- name and contact details of the trustees and update with any changes
- disclose that they may request a copy of the terms of the trust and trust information (see above) so they can ensure the trust is being enforced appropriately
Trustees can choose not to provide requested information to beneficiaries provided the request has been reasonably considered. The decision should be documented and will then form part of the trust information. The beneficiary does not need to be told the reason for not providing the information.
There are additional trust disclosure requirements coming into effect for 2022 balance dates (ie the 31 March 2022 tax year). Active trusts will be required to submit a profit and loss and balance sheet as well as other specific information. The latter is likely to include name, IRD number, and date of birth of both beneficiaries and settlors.
On top of the legislative changes above, the IRD are also taking a closer look at trusts and whether a beneficiary could be deemed a settlor of the trust. This may be the case if the beneficiary current account is in excess of $25,000 and interest is not charged at the prescribed rate. There could be unwanted consequences of a beneficiary becoming a settlor of a trust depending on individual situations. We will work with our trusts to mitigate any issues that may arise under this ruling.
With all that in mind, it is a timely reminder to ensure your trust documentation and compliance is up to date and that your trust is still fit for purpose. Consideration needs to be given to changes in circumstances (both personal and business) as well as other legislation changes, such as the increase in the top tax rate to 39%, as part of the review.
Please get in touch with your Hayes Knight advisor if you would like to discuss either the impact of the Act on your trust, or the disclosure requirements for your trust’s 2022 year.