Family or discretionary trusts are common in New Zealand. They are used to protect assets from creditors and preserve assets for family members.
Under a family trust a trustee – a person or a company – holds the assets of the trust on trust for beneficiaries. When you agree to be a trustee you take on a lot of responsibility to the beneficiaries under the trust. Those obligations include the management of the trust and its assets and meeting reporting and distribution obligations to beneficiaries. In being a trustee is not something you can simply ignore, delegate or resign from easily.
The law of trusts in New Zealand is old and being updated. New law is expected by the end of this year.
For now trustee’s duties are set out largely in the trust deed which creates the trust and in court case decisions.
Put simply a trustee’s duties are to “act honestly and in good faith for the benefit of the beneficiaries”. That seems a little brief and requires some explanation and the new trust laws proposed by Parliament will do that.
Under the proposed new law – the Trusts Bill trustees will need to:
Many of these duties will be able to be modified in the trust deed – but not all of them. Many of these duties are already implied or specifically provided for in existing Trustees but not all.
Failure to meet obligations now and in the future leaves trustees at risk for any loss suffered by the trust and the beneficiaries. This is a personal liability which cannot be contracted out of although there may be some benefits in using a company as a trustee. The trustees will have an indemnity from the trust but not one covers failure to perform duties.
The draft Trust Bill before Parliament looks to enhance and clarify current law relating to trusts – current trusts act was passed in 1956! Additional rules which will apply to trusts include that:
All of this is expected to bring clarity to the role of being a trustee. Whatever being a trustee is not something that should be taken on lightly and should only be done with a clear understanding of what is involved in being a trust trustee generally end in particular in respect of the trust – the assets and beneficiaries – proposed. Good advice at the outset should be taken.