Trust Law Overhaul - Is Your Trust Still Running By The Book?
What is the new Trusts Act and how will it affect us?
These days we are less ‘social’ but more ‘trusted’. Back in 1995, incorporated societies were over twice as prevalent as charitable trusts. Within 20 years, the numbers were almost identical, with a massive growth rate in charitable trusts. So, now more than ever, your non-profit is likely to be a charitable trust.
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Earlier this year (30 January), a new Trusts Act, 2019, came into effect; the first major update in over 60 years. It applies to all existing trusts, as well as any new ones created from 30 January.
And when we say all, we mean all trusts, not just or even specifically charitable trusts. This is mostly about family trusts etc, however, because it applies to all trusts, charitable trusts are also potentially affected. The short answer is that it mostly confirms duties that you and most legal advisors probably assumed, and it also fills in some potential blank spots.
Spelling Out Trustee’s Legal Duties
As a consequence it’s mostly helpful. Previously these expectations only existed in hundreds of different court decisions. For the first time we have spelt out in clauses of an Act what are the five mandatory, legal duties of trustees:
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Mandatory means all Trustees have to comply with them and we can’t change them or opt out just by putting something different in your Trust Deed.
Making an ass of u and me?
While the five mandatory duties are probably no surprise, there are also 10 default duties listed in the new Act, which we should not necessarily assume are as uncontroversial.
Default means you have to comply with them unless they are expressly changed or over-ruled by your own trust deed or rules document. If your document is silent, or only indirectly implies otherwise, then these default duties apply.
The full list is available from a Ministry of Justice summary, but some of the most significant are:
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So, if your trust deed or rules are silent on voting procedures, you will have to make all decisions unanimously, unless you add a specific provision for consensus or majority decision making to your deed or rules.
Similarly, as there is a default rule against trustees profiting from their role, if you want to pay an honorarium or a more substantial payment for their time as Trustees, then you will need to have a specific provision to do so in your deed or rules. Without such a provision, it has been illegal to make such payments to trustees since 30 January. But note that reimbursement of actual expenses incurred by trustees (for example travel, parking, childcare) is not considered payment for their time.
Streamlining Trust Admin
In a similar way the new Act lays out rules for how trusts should be administered, with somemandatory and some default requirements. While not a full list, some of the most significant mandatory requirements are:
All trustees must have a copy of trust rules and amendments
One trustee must also keep other key documents (eg records of decisions, contracts, financial statements, etc. (It is also important that all trustees should be able to have access to key documents, so this might be a timely prompt to think about putting them in the cloud.)
A trust deed cannot prevent a trustee being liable for any breach of trust arising from dishonesty, willful misconduct or gross negligence.
Some of the default rules relate to:
General trustee powers, including power to invest
Trustee’s power to appoint people to carry out purposes of the trust, with certain limitations (if you employ staff, delegate to volunteers, or have non-trustees on sub-committees, it will pay to check out whether the default clause is adequate or you need to specifically spell something out in your deed or rules)
Trust’s power to remove and appoint trustees, and what happens in a trustee’s death (again worth checking if adequate for how you currently appoint and remove trustees)
The End of Sweet Sixteen?
As you may know the Charities Act allows officers (such as trustees) to be 16 years and over. The new Trusts Act requires trustees to be 18 years and over. But don’t throw the young out with the new legislation just yet. This is one case where the Charities Act actually overrides the Trusts Act – so charitable trusts can have 16 and 17 year old trustees, while other Trusts cannot.
Thanks to the Ministry of Justice web pages on ‘Trust law reform’ and especially to Adrian Shields and Charity Services, on which most of this information is based.