New laws covering the governance of trusts comes into effect at the end of the week and promises to be the biggest shake-up in the sector in decades.
The New Trusts Act replaces loose, outdated regulations with best practice systems covering compliance and accountability to all beneficiaries, not just those who received a benefit from the trust.
The changes make it easier for beneficiaries to challenge the decisions of trustees through the courts.
Such a legal challenge may result in trustees being removed from their roles as the legal owners and managers of the trust’s assets.
Meeting the new regulations has been a major issue for trustees of many of the estimated 300,000 to 500,000 trusts in existence, particularly for those been set up to hide assets or minimise tax.
Martelli McKegg law partner Timothy Orr said it was too late now for trustees to avoid those obligations as the process of winding up a trust can take some time.
Orr said most of the people who had been actively managed trusts were more likely to keep the trust.
Either way, Orr said, trustees face a huge amount of work over the next year, whether or not they plan to keep their trust.
“I think you’ve got to be cautious because the provisions of the Act are having effect, and will have effect until such time as the trust is brought to an end.”
“You’ve got to think the entire playing field has shifted a bit and it’s according to those new rules that you have to act.”
He said trusts still made sense for the estate planning of blended families, as well to protect personal assets from business risks.
“It can provide an important safe haven for assets that are not connected to someone’s business, and can be kept there to ensure that no matter what happens, their family etc… can receive the benefits of those assets in the future,” Orr said.
However, he said using a trust for minimising tax was not advisable.
“That’s an unwise approach, but I think at the time whenever we did have in effect a form of gift duty or an estate duty or almost an inheritance tax scenario, the trusts were heavily used in that respect, but that’s all been gone for quite some period of time.”
Orr said trustees should look at the legislation and seek legal advice if they had not already done so.