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There have been recent changes to trust law in New Zealand which apply from 30th January 2021. While the law has not changed overtly, you should be aware of a few developments if you have a trust, and particularly if you are a trustee. You now have express mandatory duties and there is greater scrutiny around trust management. This article will explain:

  • the duties and responsibilities of a trustee; and
  • how to ensure you are fulfilling your obligations as a trustee.

What Is a Trustee?

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 legally own the property held in the trust, and you are responsible for it. The settlor can be both a trustee and a beneficiary, but they cannot be the only 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 an express trust to exist and be valid in the law, there needs to be:

  • identifiable beneficiaries;
  • identifiable trust property; and 
  • the intention to create a trust.

Further, as the trustee, you manage the functioning of the trust. This means maintaining the trust’s assets and distributing any capital generated to the trust’s beneficiaries. The trust deed outlines how you do so.

What Are Trustee Duties?

Trustees are responsible for managing the trust and have encompassing control over the trust’s property and assets. This is a lot of power. Hence, there are responsibilities attached to that power. As the trustee, you must maintain the trust’s property for the beneficiaries’ benefit. There are specific duties you have to meet to fulfil that purpose. 

The law imposes certain duties on trustees, but the trust itself will also have mandatory responsibilities. The trust deed is your first port of call for any information about the trust.

If you fail to meet your duties as a trustee, then the beneficiaries can bring legal proceedings against you in the court. You have a fiduciary obligation to operate in the trust’s best interests. This means that you should fulfil your duties in good faith because the trust entrusts you with a certain degree of power. When performing your duties, you should do so according to 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 duty 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 have a duty to 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.

You should also make sure that you make the trust’s basic information available for beneficiaries. If the beneficiary asks for further details on the trust, you should give it to them. Although you do not have to do this, you have to provide good reasoning as to why you should not.

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.

Note: Trustees that are corporate trustees or directors of a company may have additional duties.

Key Takeaways

As the trustee, you have a degree of power as the trust property’s legal owner. There are certain duties and responsibilities attached to that power. Generally, you should honestly act in the trust’s interests and make sure you are on top of managing the trust. If you would like more information or help with your duties as a trustee, contact LegalVision’s trust lawyers on 0800 005 570 or fill out the form on this page.

FAQs

What is a trust?

A trust is a kind of legal relationship. It refers to when a settlor puts property into a trust for a trustee to manage and maintain for the benefit of the trust’s beneficiaries.

What is a trustee?

A trustee is the legal owner of assets held in a trust. They are responsible for managing those assets for the beneficiaries’ benefit and have personal liability for trust property.

What are a trustee’s duties and responsibilities?

A trustee has various duties and responsibilities, those imposed by the law and those outlined in the trust deed. On top of maintaining proper trust records, a trustee has a duty to invest prudently, act impartially and act unanimously, amongst others.

Does a trustee have mandatory duties?

With the new law changes, trustees now have mandatory duties. These are the duty to know the terms of the trust, act according to the terms of the trust and act honestly and in good faith, amongst other duties.

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