It's something different. Now we're going to talk about trusts. Joining me on the show is Henry Stokes, Henry is the General Counsel at Perpetual Guardian. Welcome Henry. It's great to see you in here.

Hello. Thank you.

Now tell me, trust is something I'm really interested in. A law was passed last year which basically changes the way trusts are run and this is family trust. What are some of the key changes coming up?

Correct. It's one of the biggest changes that we've seen in the past 50 or 60 years, so it's very significant. One of the big changes is beneficiary disclosure. Beneficiaries are going to be entitled to information as a right, don't have to ask for it. The trustees have to send it to them.

So they actually have to send that to them?

Absolutely, absolutely.

This is all beneficiaries?

Yeah. It depends in terms of there is a price to determine exactly who gets provided the information. But on the whole it's your discretionary beneficiary group and determined on the basis of likelihood of receiving anything. But given that one of the new changes is going to be trusts will now be able to run for 125 years. The chances of a beneficiary receiving some benefit over that length of time has to be quite significant. Yeah.

So what are some of the other changes coming up?

So one of the other big changes is seeding out trustee's duties and now actually listed in legislation for the first time.

So it's more like a company director now isn't it?

It's very similar to that, yes. So that the duties are very clear. They're all there so trustees just cannot say, "I didn't know what was expected of me." The other thing trustees need to be aware of is that if they can go and look in legislation for what their obligations are, the beneficiaries can also go and look to see this as what the trustee should be doing.

So will there be penalties on trustees if they're not doing that properly?

There always has been penalties for trustees not doing their job properly. The act doesn't set out that you will get fined or set out particular penalties because it's a case by case scenario. So it depends if a trustee hasn't done their job properly, what has the result of not doing it properly been. And then the penalty would depend on exactly what the outcome of not doing your job properly [crosstalk 00:02:23].

So trustees will carry greater liability than previously?

Yeah, certainly on the basis of they simply can't say, "I didn't know what I was supposed to be doing or I wasn't sure what was expected."

So this has got to be a big issue because a lot of these family trusts aren't actually run very well and...

Correct.

And they don't necessarily have the skills and that. So are we going to see a lot of people getting out of being trustees and are people who are trustees putting themselves at risk?

I think that people need to give very strong consideration to a number of factors. One, if they are a trustee, are they aware what their obligations are going to be both now and moving forward? And are they happy with those? Do they want to be subject to those? You don't have to be a trustee if you don't want to be.
So you can choose to get out of the game, so to speak.

So one of the things which is interesting to me is this is a big dramatic change in the laws. Yet I don't think many trustees will know about what's happening and yet they come into effect in January next year.

Yes.

So, have they got enough time? Because nothing happens over December and January and do enough with these people know about it?

Time is a very critical factor and you're absolutely right. It's ticking extremely fast. It comes in on the 30th of January, 2021. But December, Christmas, January, people away at the beach, nothing much happens. And with trusts, the things that people need to be conscious of with trusts in general things don't move particularly fast. So now is absolutely the time to be looking at things, making decisions and start getting things sorted. You've got people who have their own trusts. They need to be able to look at those, work out why did I set it up in the first place? Does that same reason still exist or has it changed to something else or is a trust no longer right for me? There's a number of different answers to all of those. It all depends on their own situation. It may be keep the trust, but it might need some variation.

Like they might have the entire wide family included as beneficiaries and they want to vary that, reduce that down to just your core family members. Others that need to be thinking about the time factor are professionals. And I've got a whole lot of trusts on their book that they are trustee of. They may want to exit and they may have already made that decision up in their own mind. But it's the getting onto it and making sure they've got the time to actually do that. There's a big process involved. They need to write toward the client saying, "We're thinking of exiting trusteeships, this is going to affect you." They need to think about who they can suggest as another professional trustee to stand in their stead and how that changeover process is all going to occur. So they need to be getting onto these things now. It's not one of those situations you can put it to one side.

So are you seeing any evidence at the moment that people are actually starting to do things?

We're seeing a combination. So we are seeing, yes there are some that are moving. We have a number of professionals that are talking to us at the moment about options for trusteeship and what can be done in that space. And others who have told us, and there are a number that fall into this category, they are with thinking about things we know we must get onto it, but they simply haven't to the doing stage yet. And that is highly concerning. I think for a lot of those, they are running out of time if not have already started to run out because of the process that they need to put in place takes so long to effect.

And for financial advisors, so quite a lot of advisors act as trustees on family trusts. Is that something that they should continue to do?

It's a big call moving forward. I do believe that if you're going to be a trustee it needs to be your full time focus. Trusteeship is something that certainly I think for already for some time, but certainly now under the new requirements, there's not something you can do on the part time basis. So if you're the likes of a financial advisor or a lawyer or an accountant who have day to day transactional work, then I believe that you should be focusing on that day to day transactional work. That is what you do and actually get out of the trusteeship and have others in the professional trustee companies, et cetera being trustee. That's their day to day transactional business. And the two can sit very nicely side by side.

So, has any work been done around how these trustee duties fit in with financial advisors when they're setting up faps under this new regime which is coming on?

Yeah, there's a lot to be aware of and in particular with the new act, you've also got obligations that didn't exist before about when you're setting up a trust, the advice that you must give to people, particularly around exclusions, powers that you're including, excluding, et cetera, trustees obligations that you may be modifying and all of that. Before, you could do that and there was no specific requirement about giving people advice to say, "We've taken this out." By doing this means we won't have to do A, B, and C. That's now all in there. On top of you've got other regime requirements and regulations that once you'll set up, you must comply with. So there's way more than what has ever been in the past.

So Henry, when we get to the 31st of January next year and all this change is coming, what do you think is going to happen then?

I think we're going to have a lot of people who are going to have one of those, "Oh my goodness" moments. And suddenly find themselves in breach on that day. If you have not made disclosure and complied with the new requirements by the 30th of January, the very next day, the 31st you're in breach. So that's where you've got to be prepared. But also beyond that date, variations, windups, et cetera, they have extra requirements that make them harder and make the process longer than what we currently have. So now is the opportunity to address that and get fit. If you are going to make a decision to wind up your trust, definitely do it now before the 30th of January.

Yeah. Okay. And, the other point I was sort of making before is that seems like people don't know that a lot of the stuff is happening. Where should they go to find out more information?

So there's not as much information out there as what I would like to see and certainly from government agencies, et cetera the information is lacking. Perpetual Guardian as putting as much information out as we possibly can. There's information on our website, which is www.Perpetualguardian.co.nz. And we're updating that also as we go. We're also trying to get articles out on the mainstream media as often as we can. So you'll see that pop up from time to time as well as being thankful for people like yourself who are getting as much information out there as we possibly can.

So IRD, do they have a role in informing trustees to what's going on?

Unfortunately, the IRD only believes it's got a role of providing information for specifically text related. So no.

So there's no real government agency, which is ...

That's specifically looking to address this issue in particular no.

Yeah. There's certainly a lot of things for people to be thinking about.

Oh very much so.

We'll be keeping a close eye on this. Look. Thanks very much for your time, Henry. It's great to have you on here.

Thank you.