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01 April 2018
by PATRICK LEARMONTH
THE RULES OF BEING A TRUSTEE ARE CHANGING

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:

  • understand the terms of the trust deed – actually read the trust deed and take advice as to what it all means.
  • comply with the terms of the trust
  • be impartial between beneficiaries – not arbitrarily favour one beneficiary over another.
  • act in the best interests of the beneficiaries
  • not personally profit from being a trustee – this rule will be subject to the trust terms.
  • invest trust assets – proper advice will need to be taken.
  • not delegate powers or functions – again this will be subject to the trust terms.
  • act unanimously.
  • be active in carrying out the Trustees duties
  • keep proper accounts and give information as required to beneficiaries.

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:

  • there will be a statutory description of what a trust is
  • minimum duties will apply to Trustees – based on past court decisions and as listed above.
  • trustees will be required to manage and provide information to beneficiaries who have a reasonable likelihood of receiving trust property.
  • there will be flexible trustees powers and updated rules for delegation of duties.
  • there will be updated and clear rules for variations to and termination of trusts and
  • there will be options for removing and appointing Trustees without any need for a court order.

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.