New Zealanders have a love affair with Trusts and this is not likely to end anytime soon. There are approximately half a million trusts in New Zealand, that’s a lot of trustees. As a trustee are you confident that you know what your duties at law are? There are many, but some of your basic duties are to manage the trust fund effectively, be loyal, act in the best interests of the beneficiaries and to act without receiving anything.
Presently, trustee duties are not set out in legislation. They are found in centuries of case law, developed by Judges over years on a case by case basis.
The terms of your trust can trump some of the established trustee duties where the terms of the trust direct. For example, if the duty to act impartially towards beneficiaries was modified by the trust deed, one trustee may prefer one beneficiary over another without being in breach of the duty. The duty to act without reward may also be altered to allow a professional trustee to be paid by the trust. The duty to act unanimously as trustees can be altered requiring only a majority of trustees to agree to any decisions.
Of course, there are those core trustee duties that must exist and cannot be excluded or modified by the terms of the trust.
These core trustee duties imposed on trustees are the duty to:
1. adhere to the Trust terms;
2. honestly and in good faith; and
3. for the benefit of the beneficiaries.
Excluding any of these duties from a trust deed could result in your trust being invalid. The lack of understanding of what trustees’ duties are, what they mean has led to a “mass of inferior trusteeships”. It's that inferior trusteeship that prompted the creation of the new Trusts Bill which will replace the current legislation. The intention of the Bill is to clarify existing trust law, make the law of trusts more accessible and in some cases reform it.
The Bill reforms the current law in respect to Trustee duties. Under the Bill trustee duties are put into two categories 1) Mandatory duties (which include the core duties outlined above) and 2) Default duties. The Bill states that the Mandatory duties cannot be excluded or modified by the terms of the trust whereas the Default duties can be. The major reform is the addition of a new core duty for trustees to “know the terms of the trust”. We expect that a large number of trustees do not know or understand the terms of their trusts and may be in breach of their duty if they fail to take steps to become familiar with the terms when the new Bill comes into force.
An article in Business Today refers to research that compares running a trust to driving a car and that a significant number of trustees are less ‘Lewis Hamilton than Mr Bean’. If as Rob puts it trustees are ‘asleep at the wheel’ it is time to wake up, the bar has been raised and being a trustee is about to get a whole lot riskier.