Trustee’s Duties

Basic Obligations

• A trustee must know what the trust incorporates– the assets– the terms of the trust

• So the need to read the trust - to be aware of the assets and the requirements or limitations. The Trustee can’t assume anything. They need to take control of the assets - to get them into the names of the trustees is a good starting point.

• This is particularly important if the Trustee is replacing a previous trustee

Trust Deed Paramount

• The terms of the trust deed MUST be followed:– whether trustee agrees or not.– despite pressure being brought to bear by

beneficiaries or third parties.

• Failure to do so leaves the Trustee potentially liable to the Beneficiaries

Duties of investment

• A trustee must also check that provisions of the trust are being carried out

– are the monies in suitable investments?

– are the intentions of the trust being effected by those investments?

Exceptions

• The Trustees may depart from the terms of the Trust Deed in certain circumstances:

1. Where all beneficiaries are sui juris and in agreement.

• Emphasis is on all beneficiaries.• if children are life tenants and grandchildren

residuary beneficiaries - can you be 100% certain that there will be no more?

• Refer s.7(2) Perpetuities Act 1964.

7. Presumptions and evidence as to future parenthood—

(2) Where this section applies, there shall be a presumption, rebuttable by sufficient evidence to the contrary tendered at the time at which the matter falls for decision, but not subsequently, that—(a) A woman who has attained the age of 55 years

is incapable of having a child and will not subsequently have a child; and

(b) A male or female who has not attained the age of 12 years is incapable of having a child while under that age.

Impossibility

2. Where the requirements can’t be carried out

• eg - can’t find buyer

• or - prevented by law.

Court Approval

• 3 Where the deviation is sanctioned by the Court.

• There is suggestion that the Court has an inherent jurisdiction - but there are also statutory powers in s.64(1) Trustee Act.

• Deviations could only go so far – it is doubtful whether a court could order the sale of the main asset eg, farm where that is specifically required to be held in terms of trust deed (unless in terms of management or administration).

• Note that a Court can’t authorise a variation of the trust s.64A Trustee Act

• Many cases have been recorded which relate to an application to bring forward the vesting date.

• In one case the Court declined to allow a sale to a life tenant of the farm - in circumstances where that was clearly against the intention of the trust and considered to be more than ‘a step in management’.

• A Court won’t make an order unless the proposed alteration is for the benefit of the estate as a whole - NOT for any particular beneficiary or group of beneficiaries in isolation.

• s.23 Guardianship Act 1968 requires the Court to regard the welfare of a minor as paramount but that does not limit s.64 and 64A Trustee Act.

Trustee’s Duties

1 Acquaintance with terms of trust. The trustee must be familiar with the terms of the trust.

2 The trustee must adhere to the terms of the trust.

3 Must be impartial as between beneficiaries and as between the different classes of beneficiaries. Must be fair to all beneficiaries.

Diligence and Care

4 Must use such care and diligence in the management of trust affairs as they would use in their own affairs but even more so. There is an additional burden because it is not the asset of the trustee - so true test is how he would deal with the money of another person. ‘Prudent person rule’. A level above the care given to your own affairs.

Standard of care

5 The duty is the same for all trustees - but a professional trustee is expected to give a higher degree of diligence and knowledge given his/her position.

• If a trustee uses professional advice - relief from liability is not automatic.

• eg There may be details not given to the professional adviser.

Cannot delegate

6 Generally a trustee cannot delegate responsibility as trustee

• can allow arrangements for administration

• but can’t delegate decisions or discretions

Exceptions

Full delegation is allowed in ss. 29(2) and 31 Trustee Act

• where property outside New Zealand• where trustee is temporarily unable to actBUT can still be responsible unless overseeing

matters which have been delegated. At minimum yearly meetings should be held at which accounts and purposes are discussed.

Trustees’ actions must be unanimous - not majority rule. So if can’t agree - status quo reigns.

Cannot charge for services

7 A Trustee in general terms cannot charge for their services - but they should not be out of pocket. See section 38(2) Trustee Act 1956.

• So can pay for advice and appropriate agents.• This rule is to prevent professional trustees from

doing more than is necessary, BUT there may be provision for such payment in the deed or by agreement between trustee and beneficiaries. An example seen in wills appointing professionals as executors.

• s. 72 Trustee Act permits the Court to allow commission having regard to the work done.

Not to profit

8 A trustee cannot make any profit out of his trust either directly or indirectly. This is very strictly interpreted and enforced.

• It is advisable that a trustee never becomes personally involved with trust property - or if he does so, then only with full disclosure to all involved.

Payments

9 Trustee has the responsibility to pay the money to the right person.

• If he pays out to the wrong person - a trustee can be personally liable, even if done on advice from a professional adviser in some circumstances.

• There could be grounds for relief if trustees acted in good faith and had done everything possible in trying to recover the money or property involved.

Accounts

• 10 A trustee must keep full and clear accounts and provide them to the beneficiaries when requested. Is not obliged to provide those to legatees and devisees.

• Duty to realise debts.• Duty to enforce a covenant given for valuable

consideration.• Prove a debt in bankruptcy of a debtor.• Sell assets at proper value.• Obtain valuation before purchase/sale.

Accounts cont…

• Keep an inventory of chattels.• Don’t leave funds in any agent control for

unnecessarily long period.• Don’t leave funds in sole control of co-trustee.• Don’t lend funds to co-trustee.• Don’t lend funds on contributing mortgage

(unless has control over other contributors).• Don’t mix trust funds will his own.• Realise all unauthorised and hazardous

investments quickly.

Capital and Interest

• Trustees must balance the interests of beneficiaries who receive the annual income from the trust property (Life Tenants) and those who will receive the capital at the end of the life of the Trust (Remaindermen).

• This duty may require the Trustee to convert the Trust Property into another form if it is currently of a particular type.

• Wasting Assets produce good income but can be terminated by a third party before they pass to the remaindermen.

• Hazardous Assets - speculative investments that could produce a handsome return but are subject to the risk of company failure.

• Reversionary Assets – are assets which the trust does not actually own yet, as where the Settlor has transferred their interest as a remainderman into a trust.

Apportionment

• The Trustee will have to apportion any income that accrues from day-to-day where the entitlement to the income is split between beneficiaries (such as where a life interest to Beneficiary A expires and the property is transferred to Beneficiary B).