The Trusts Act 2019 received royal consent in July 2019 and will come into effect after 30th January 2021. The Act codifies existing practice surrounding trusts. The key changes are:
- Extension of a trust’s life from 80 years to 125 years.
- Defined trustee duties to mandatory duties and default duties. Default duties can be contracted out.
- Requires trustees to keep trust documents.
- Requires trustees to disclose basic information about the trust to its beneficiaries.
- Requires unanimous trustees’ resolution and sometimes beneficiaries’ resolution for certain types of trust transactions.
GS has helped clients form and manage trusts for the past three decades. A trust is a very popular ownership structure and its benefits when compared to other types of structures are obvious:
- More private compared to companies where most information is public.
- More flexible in income distribution, as beneficiary distribution does not need to be justified compared to company shareholders employee salaries.
- Better asset protection, legal ownership totally separated from beneficial ownership.
- Ideal long term wealth accumulation, it is easy to change a beneficiary owner without need to bear the consequence of loss of shareholder continuity in a company structure.
- The residency status of the trust also provides foreign trusts a unique tax advantage when holding foreign assets and deriving foreign income.
The new Trusts Act does not affect the good quality of the trust as an ownership structure, but it does require better administration of a trust and hence the increase in compliance requirements. This does not need to be taken as a negative message. The more transparency of the trust’s operation and the better communication between the trustee and beneficiary, can only help to improve the management of a trust.
In practical terms, for GS from now and when the law comes into force, we will need to:
- Review trust documents making sure new trusts comply with the new law;
- Review all existing trusts, advise any amendment on documents and operating processes;
- Make sure all trustees can access full and correct version of all trust documents;
- Help establish the beneficiary communication channel and making sure necessary disclosures are done within a reasonable time frame.
- When advising clients on the set up of a new trust, we need to make sure they understand the cost and benefits of setting up trust to hold investments.