Duties of trustees: What you NEED to know as a trustee

Trustees and trusts

New Zealand has more trusts per capita than any other country in the world. New Zealanders want trusts. But do we really understand them?

In recent times, the creation of trusts has slowed but there has been an increase in beneficiary interest in trusts - in particular, requests for information from and claims against trustees.

In order to avoid disputes and defend claims, it is essential that trustees understand and comply with their duties.

Duties of a trustee

The key duties of trustees are:

• To always act and make decisions in the best interests of the beneficiaries – this must be the main consideration of the trustees at all times;
• To remain impartial between beneficiaries – this does not necessarily mean that all beneficiaries receive an equal share, but the trustees must consider all the beneficiaries equally;
• To benefit the correct beneficiaries - trustees will be liable if they wrongly benefit people who are not beneficiaries of the trust;
• To act unanimously - unless the trust deed states otherwise, the trustees must make decisions together;
• To actively participate - a trustee cannot “sit back” and rely on the co-trustees to make the decisions;
• To invest and manage the trust assets with care, diligence and skill as a prudent business person would. Professional trustees have a higher standard and must exercise the level of care, diligence and skill that a prudent person in that profession would;
• To not profit personally from their position as trustee – this requires trustees to act voluntarily and without payment for their services, except in specific circumstances;
• To understand and comply with the terms of the trust deed, other trust documents, the Trustees Act 1956 and all trust property;
• Not to delegate their decision-making powers, except in very specific circumstances (i.e. where a trustee is overseas or physically unable to participate);
• To keep proper records and give information as required if that information is necessary to ensure that the trustees have acted properly.

The above duties apply regardless of whether you are a trustee of a family trust or an executor appointed under a will.

Proposed changes

The New Zealand Law Commission is currently reviewing the law of trusts in New Zealand. Part of that review has been the proposal of a new Trusts Act to replace the current Trustee Act 1956. The final report by the Law Commission is due to be released towards the end of 2013.

Conclusion

In summary, the times - and trusts - are changing. If you are a trustee and have any doubts about your duties or the way the trust is being run, you should seek legal advice.

If you would like further information please contact Amanda Hockley on 07 958 7451.