by Craig Savage CA
I recently attended a course on Trusts, which focused on the rules around Trustees Duties. I thought it would be good to discuss some of these, as a lot of people either have never known, or easily forget just what they are expected to do.
It is no secret that New Zealander’s love Trusts. It is estimated there are up to 500,000 trusts operating in New Zealand. We have the highest number of trusts per capita in the world. The whole notion of Trust’s began way back with the Crusades. Back then, women were not able to own property, so knights who went off to reclaim the Holy Land would put their property in the hands of a Trustee to provide for his wife and children. Many things have changed since then, but the basic principle of trusteeship hasn’t – that the trustee holds assets on behalf of others.
This is a position of immense trust (no pun intended) as the Trustee legally owns the property and can have vast powers. Most trusts these days will usually have mum and dad, plus either a friend or a professional trustee.
Many of the duties of Trustees are fairly obvious, but still require thought. It’s worth reviewing the trust deed regularly and thinking about how the trust is used to ensure you don’t run into any issues down the track.
Some (but not all!) of a trustees duties are :
- Know the terms of the Trust
This seems so obvious, but many people probably get the trust deed drawn up and then never read it again. The scope and limits of trustees powers are all set out in the trust deed, so you need to know what they are.
- Follow the terms of the Trust
Again, seems obvious, but easily breached. Some trust deeds prohibit borrowing in the trust. If the trustees then buy a property and get a mortgage, they may be found personally liable for the debt as they breached the trust deed!
- Impartiality
Trustees must act fairly and respectfully towards all beneficiaries. This doesn’t mean distributions must be equal, but you can’t simply decide not to consider someone for a distribution because they have annoyed you. In family trusts this can happen where one child shacks up with someone the parents don’t like.
It’s also worth thinking about just who you name as beneficiaries in the trust deed. Many trust deeds are very open about who can be a beneficiary, which could potentially cause problems – say you named your spouse, children and your siblings. Your intention was always to distribute to your children, but your siblings are also entitled to due consideration.
- Prudent Investment
I love this one. The rules are that Trustees must consider whether a prudent person would invest the trust funds in the way the Trustees have done. If the trust deed isn’t clear about the intention to invest or retain assets for reasons other than financial return you could get in strife. For example say a property was sold and the funds spent on a retirement unit for mum and dad. Knowing these purchases often lose money, it would not be hard for a ‘prudent person’ to decide that buying that property was not a prudent investment. Again, make sure the trust deed is clear on the wishes of the settlors!
- Act jointly and unanimously
Trustees decisions must be unanimous, and all trustees must be a part of all decisions. If you have a friend as a trustee, you can’t simply make a decision and get them to sign off. Think carefully about who you appoint as a trustee, if they head overseas, or there is a falling out it can make things quite complicated!
- Good faith and for the Beneficiaries Benefit
This is a most fundamental principle Trustees must adhere to. All decisions and actions must be in the best interests of all beneficiaries.
There are many other duties Trustees must discharge to properly administer a trust. It is a huge legal responsibility and should be carefully considered. If you are ever asked to be a trustee for someone, we would advise you to get independent legal advice before accepting.
The information contained in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a suitable advisor.
It is no secret that New Zealander’s love Trusts. It is estimated there are up to 500,000 trusts operating in New Zealand. We have the highest number of trusts per capita in the world. The whole notion of Trust’s began way back with the Crusades. Back then, women were not able to own property, so knights who went off to reclaim the Holy Land would put their property in the hands of a Trustee to provide for his wife and children. Many things have changed since then, but the basic principle of trusteeship hasn’t – that the trustee holds assets on behalf of others.
This is a position of immense trust (no pun intended) as the Trustee legally owns the property and can have vast powers. Most trusts these days will usually have mum and dad, plus either a friend or a professional trustee.
Many of the duties of Trustees are fairly obvious, but still require thought. It’s worth reviewing the trust deed regularly and thinking about how the trust is used to ensure you don’t run into any issues down the track.
Some (but not all!) of a trustees duties are :
- Know the terms of the Trust
This seems so obvious, but many people probably get the trust deed drawn up and then never read it again. The scope and limits of trustees powers are all set out in the trust deed, so you need to know what they are.
- Follow the terms of the Trust
Again, seems obvious, but easily breached. Some trust deeds prohibit borrowing in the trust. If the trustees then buy a property and get a mortgage, they may be found personally liable for the debt as they breached the trust deed!
- Impartiality
Trustees must act fairly and respectfully towards all beneficiaries. This doesn’t mean distributions must be equal, but you can’t simply decide not to consider someone for a distribution because they have annoyed you. In family trusts this can happen where one child shacks up with someone the parents don’t like.
It’s also worth thinking about just who you name as beneficiaries in the trust deed. Many trust deeds are very open about who can be a beneficiary, which could potentially cause problems – say you named your spouse, children and your siblings. Your intention was always to distribute to your children, but your siblings are also entitled to due consideration.
- Prudent Investment
I love this one. The rules are that Trustees must consider whether a prudent person would invest the trust funds in the way the Trustees have done. If the trust deed isn’t clear about the intention to invest or retain assets for reasons other than financial return you could get in strife. For example say a property was sold and the funds spent on a retirement unit for mum and dad. Knowing these purchases often lose money, it would not be hard for a ‘prudent person’ to decide that buying that property was not a prudent investment. Again, make sure the trust deed is clear on the wishes of the settlors!
- Act jointly and unanimously
Trustees decisions must be unanimous, and all trustees must be a part of all decisions. If you have a friend as a trustee, you can’t simply make a decision and get them to sign off. Think carefully about who you appoint as a trustee, if they head overseas, or there is a falling out it can make things quite complicated!
- Good faith and for the Beneficiaries Benefit
This is a most fundamental principle Trustees must adhere to. All decisions and actions must be in the best interests of all beneficiaries.
There are many other duties Trustees must discharge to properly administer a trust. It is a huge legal responsibility and should be carefully considered. If you are ever asked to be a trustee for someone, we would advise you to get independent legal advice before accepting.
The information contained in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a suitable advisor.
