Duties and Responsibilities of a Trustee in NZ

In Short

• Mandatory duties are non-negotiable and include acting honestly, following the trust deed, and managing assets solely for beneficiaries.

• Default duties apply unless the trust deed excludes them; they cover prudent investment, impartiality, and avoiding conflicts of interest.

• Trustees must maintain accurate records and may need to disclose basic trust information to beneficiaries upon request.

Tips for Businesses

When establishing a trust, consider appointing a corporate trustee to benefit from limited liability, enhanced asset protection, and continuous succession. While this approach may involve higher setup and maintenance costs, the long-term advantages often outweigh these initial expenses.

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Table of Contents

• What is a Trust?
• What Are Trustee Duties?
• Mandatory Duties
• Default Duties
• Enhanced Beneficiary Rights
• Trustee Liability
• Key Takeaways
• Frequently Asked Questions

If you are involved with a trust as a trustee, or are considering taking this role on, it is crucial to understand the laws that apply to that role. The landscape of trust law in New Zealand underwent significant changes in 2021. While the fundamental principles of the law remained intact, the changes introduced more straightforward guidelines and heightened responsibilities for trustees. Following the changes, the role of trustee is subject to express mandatory duties, and there is greater scrutiny around trust management. This article will explain:

• the concept and essential elements of a trust;
• the duties and responsibilities you hold as a trustee; 
• practical steps to ensure you are fulfilling your obligations as a trustee; and 
• the rights of beneficiaries under the new legislation.

What is a Trust?

The concept of a trust itself is fairly simple. It is the legal relationship created when someone (the settlor) gives their property to you (the trustee) to hold and maintain for the benefit of a third party (the beneficiary). You are the legal owner of the property held in the trust and are responsible for it. It is essential to note that the settlor can be both a trustee and a beneficiary; however, they cannot serve as the sole trustee and beneficiary.

For example, say that you decide to put your business premises into a trust. If you are also the trustee, then the property is held in your name. For a valid trust to exist, three elements must be present:

• Identifiable Beneficiaries: These are the individuals or entities who will benefit from the trust;
• Identifiable Trust Property: This is the asset or assets that are placed into the trust. 
• The Intention to Create a Trust: There must be a clear intention on the part of the settlor to establish a trust relationship.

Without these elements, a trust may not be legally recognised or enforceable.

What Are Trustee Duties?

Trustees are responsible for managing the trust and have comprehensive control over the trust’s property and assets. This involves maintaining the trust’s assets and distributing any capital generated to the beneficiaries, as outlined in the trust deed. This level of control comes with significant power and, consequently, substantial responsibilities.

The law imposes certain duties on trustees, but the trust itself will also have mandatory responsibilities. If you fail to fulfil your duties as a trustee, the beneficiaries can initiate legal proceedings against you in court. You have a fiduciary obligation to operate in the trust’s best interests. This means that you have a legal duty to act in good faith and place the interests of the trust and its beneficiaries above your own. When performing your duties, ensure that you do so in accordance with the trust’s context and objectives.

There are two types of duties given to trustees by the law. These are:

• mandatory duties; and
• default duties.

Mandatory Duties

These are duties that you must follow. You cannot modify or exclude these duties in the trust deed. These are the duties to:

• know the terms of the trust;
• act according to the terms of the trust;
• act honestly and in good faith;
• only use the power given to you by the trust for proper purposes; and
• act for the benefit of the beneficiaries or to promote the permitted purpose of the trust.

You also must maintain good records of the trust. This means keeping written records of:

• the trust deed;
• any later variations of the trust;
• any other core documents of the trust;
• trust property;
• trustee decisions;
• any trustee removal or appointment; and
• any written contracts involving the trust.

Default Duties

These are duties that the law sets out, but the settlor has the option of modifying them or excluding them entirely from the trust. They should outline such modifications in the trust deed. If not, these duties still apply, and you can be liable if you do not meet them. This includes a general duty of care, as well as the duty to:

• invest prudently;
• not to exercise your power for your own benefit;
• consider how you use your power;
• not limit a future trustee’s discretion;
• avoid a conflict of interest;
• act impartially;
• not profit from your acts as trustee or act for a reward; and
• act unanimously.

For instance, the duty to act impartially means that if you are deciding whether to distribute trust income, you should consider the interests of all beneficiaries fairly. You shouldn’t favour one beneficiary over another unless the trust deed explicitly allows this.

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Enhanced Beneficiary Rights

The 2021 legislative update significantly strengthened beneficiaries’ rights to information. As a trustee, you are now required to proactively provide basic trust information to every beneficiary. This includes:

• the fact that a person is a beneficiary of the trust;
• the name and contact details of the trustees;
• details of trustee appointments, removals, and retirements as they occur; and
• the right of the beneficiary to request a copy of the trust deed or trust information.

Beneficiaries can also request additional trust information. While you are not obligated to provide all requested information, you must consider such requests carefully and provide good reasons if declining.

Trustee Liability

Trustees should be aware of the potential personal liability they face if they fail to meet their obligations. This can include:

• financial liability for losses to the trust caused by breach of trustee duties;
• removal from the role of trustee;
• legal costs associated with defending against claims by beneficiaries; and
• in extreme cases, criminal liability for fraudulent or dishonest behaviour.

To mitigate these risks, trustees should ensure they fully understand their duties, act in good faith, and seek professional advice when needed.

Key Takeaways

As the trustee, you have a degree of power and comprehensive control over the trust. There are significant responsibilities and potential liabilities attached to that power, including mandatory and default duties outlined in the Trusts Act 2019. Generally, you must always act in the best interests of the beneficiaries and the trust and make sure you are on top of managing the trust. This includes proactively providing basic trust information to beneficiaries, considering their requests for additional information, and being aware of potential personal liability for failing to meet your obligations. Understanding and fulfilling your duties is crucial for the proper management of the trust and to protect yourself from legal risks.

If you are a trustee, our experienced trust lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.

Frequently Asked Questions