Law Commission recommends sweeping changes to trust legislation

The Law Commission wants to crack down on the "injustice" that allows the use of trusts to protect property during matrimonial or other relationship disputes. Photo / Thinkstock

The Law Commission has recommended sweeping changes to the legislation dealing with trusts including giving courts the ability to order the transfer of trust assets to compensate disadvantaged partners following marriage or other relationship breakdowns.

The commission this afternoon released a detailed 276 page report on trusts including recommendations for a new Trusts Act following a four year review.

Law Commission President Sir Grant Hammond said the new Act would be relevant to tens of thousands of New Zealanders who use trusts as a way of holding and managing property and other assets.

The commission estimates there are as many as 500,000 trusts currently in existence in New Zealand, used for a variety of purposes ranging from owning the family home, through to use in business, by charities, and by Maori and others to hold land and other assets collectively.

A significant factor driving the proliferation of trusts in this country was matrimonial property law changes in the 1970s.

The Commission has previously said it wanted to address the "injustice" of current laws that allow trusts to be used to avoid having to share property equally when couples separate.

This afternoon's report noted that a 2002 law change intended to address the issue had proved inadequate because it only allowed income from assets held in trusts rather than the assets themselves to be used to compensate a disadvantaged partner.

Its recommended law change would allow courts to order the transfer of trust assets if those assets would have been available for division between the couple as relationship property.

Another key recommendation was that courts would be able to find that a trust had not been established and had no legal standing if the person who established it continued to manage the assets it held "as if they are their own personal property".

Sir Grant said given trusts formed a core part of New Zealand's economic, social and legal infrastructure, it was vital for the law around them to be "clear and accessible to ordinary people who use them".

The current law was "outdated and much of it is difficult to understand".

He said it was in the public interest "to have a modern statute that gives trustees and others guidance as to how a trust is to be managed and increases the accountability of trustees".