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The role of trustee is a fiduciary role. This means that a trustee must act in good faith at all times and in the best interests of the trust’s beneficiaries. Trustees owe the beneficiaries the utmost loyalty and must:

• know and adhere to the terms of the trust expressed in the deed of trust
• manage the trust efficiently
• keep accounts and provide information to beneficiaries on request
• act personally, and
• consider the beneficiaries and act in the beneficiaries’ best interests.

Section 22 of the Trusts Act 2019 reiterates that the duties listed in 23 to 27 are mandatory and cannot be avoided or contracted out of. These are duties to:

• know the terms of trust
• act in accordance with terms of trust
• act honestly and in good faith
• act for benefit of beneficiaries or to further permitted purpose of trust
• exercise powers for proper purposes.

Trustees are not permitted to profit from the position of trustee, unless there is express permission to do so.

Know and adhere to the terms of the trust

The importance of understanding and following the terms of the trust deed cannot be overstated. The trust deed provides the rules for the trust. Although many trusts are settled on similar terms, familiarity with the terms of each trust for which a trustee acts is essential. The importance of this duty was highlighted in Enright v Enright, where the trustees did not meet the duty imposed in the trust deed to divide the residual income amongst the settlor’s children. The beneficiaries were subsequently entitled to compensation of more than $1.7m.

Manage the trust efficiently

Efficient trust management requires familiarity with the terms of the trust and the development of, and adherence to, appropriate management systems. The level of care and diligence exercised should be that exercised by a person of ordinary prudence and vigilance managing that person’s own affairs. To meet the duty of efficient management, the trustee must:

• Adhere to the terms of the trust deed at all times.
• Identify all trust assets and liabilities. Ensure that all assets are held by the current trustees.
• If the trust is a new trust, set up procedures for proper management and administration.
• If the trust is an existing trust, satisfy yourself that the trust affairs have been managed and administered properly. If you are not satisfied regarding these matters, take corrective action.
• Establish systems to monitor and review management and administration as required. Ensure there is a process in place to:
  • review and check bank statements
  • review investment reports, and
  • review financial statements.
• Ensure that trust investments are made in accordance with the terms of the trust deed.
• Keep on top of trust issues so that decisions can be made on a well-considered and timely basis, taking into account the terms of the trust and the best interests of the beneficiaries.
• Ensure that management costs and trust expenses are reasonable relative to the size and complexity of the trust’s assets.

Keep accounts and consider whether to provide information to beneficiaries on request

The trustees must keep trust accounts. These accounts and any other trust information must be stored or recorded (as relevant) in a way that is accessible to all the trustees. Trust documents should be stored for at least the life of the trust and a reasonable period after the trust has been wound up. Currently, if a beneficiary asks for trust information, there is no presumption for or against disclosure; rather the decision whether or not to make disclosure is an exercise of the trustees’ discretion. Disclosure is generally required so that beneficiaries can ensure the due and proper administration of a trust. Where no disclosure is made, trustees need to turn their minds as to how else this can be ensured.As a general proposition, information that trustees should consider disclosing to a beneficiary includes:

• the trust deed
• deeds of variation
• names of trustees and former trustees
• acknowledgments and forgiveness of debt
• financial statements
• trust accounts, and
• the trustees’ investment strategies.

Any request for information should be considered on its own facts. Exercise care in determining what documents beneficiaries are entitled to. The beneficiaries’ right to trust information derives from the court’s inherent jurisdiction to supervise trusts. However, when applications for information are made to the High Court, the Court retains a residual discretion to determine whether or not the release of the information sought is in the best interests of all the beneficiaries.The Trusts Act introduces a new presumption regarding providing basic trust information to all beneficiaries.The basic information as per s 51(3) is:

(a) the fact that a person is a beneficiary of the trust

(b) the name and contact details of the trustee

(c) the occurrence of, and details of, each appointment, removal, and retirement of a trustee as it occurs, and

(d) the right of the beneficiary to request a copy of the terms of the trust or trust information.

The obligations regarding basic trust information will be ongoing: s 51(4).Whether or not to provide additional information is a separate consideration. There are factors set out in s 53 of the Trusts Act to assist trustees regarding notifying beneficiaries of the basic trust information and what information to disclose following a request for further information.These factors are:

(a) the nature of the interests in the trust held by the beneficiary and the other beneficiaries of the trust, including the degree and extent of the beneficiary’s interest in the trust and the likelihood of the beneficiary receiving trust property in the future

(b) whether the information is subject to personal or commercial confidentiality

(c) the expectations and intentions of the settlor at the time of the creation of the trust (if known) as to whether the beneficiaries as a whole and the beneficiary in particular would be given information

(d) the age and circumstances of the beneficiary

(e) the age and circumstances of the other beneficiaries of the trust

(f) the effect on the beneficiary of giving the information

(g) the effect on the trustees, other beneficiaries of the trust, and third parties of giving the information

(h) in the case of a family trust, the effect of giving the information on—

(i) relationships within the family

(ii) the relationship between the trustees and some or all of the beneficiaries to the detriment of the beneficiaries as a whole

(i) in a trust that has a large number of beneficiaries or unascertainable beneficiaries, the practicality of giving information to all beneficiaries or all members of a class of beneficiaries

(j) the practicality of imposing restrictions and other safeguards on the use of the information (for example, by way of an undertaking, or restricting who may inspect the documents)

(k) the practicality of giving some or all of the information to the beneficiary in redacted form

(l) if a beneficiary has requested information, the nature and context of the request

(m) any other factor that the trustee reasonably considers is relevant to determining whether the presumption applies.

Act personally

Trustees act personally.Trustees must be involved in trust decision-making processes and must personally make decisions. If a trustee has lost or is losing mental capacity, care is required to ensure that the trustee is removed or retires as a trustee because a trustee who has lost capacity can no longer carry on the role of trustee. When a trustee loses capacity while acting as a trustee, it is necessary to get a court order to transfer any property owned by the trustees to the continuing, and any replacement, trustees.

As a trustee, you are permitted, and in fact are required, to take beneficiary interests into account. However, beneficiaries cannot dictate how trustee decisions should be made.

Trustees can take into account instructions given by a settlor in the form of letters or memoranda of wishes. However, unless these wishes form part of the terms of the trust, they are not binding on the trustees. This means the trustees are not obliged to follow them. That said, a trustee would need a good reason not to.

Decisions must be unanimous unless the deed of trust allows for majority decision-making.

Accountants, lawyers, financial advisers and other professionals appointed by the trustees must be properly engaged and instructed.

Trustees must be careful not to commit to certain decisions in advance in a way that will prevent the trustee from later acting as the trustee wishes. This is often referred to as not fettering a trustee’s decision-making powers.

Delegation occurs where the trustees give a power or discretion to another person (an agent) who is not a trustee. Delegation is only permissible if:

• the trust deed provides that certain powers and discretions can be delegated, in which case any delegation must be in accordance with the terms of the deed
• there is trust property outside of New Zealand, in which case s 29(2) of the Trustee Act permits trustees to appoint an agent for the purposes of selling or otherwise managing the property, or
• a trustee will be absent from New Zealand or physically incapable of performing duties as a trustee (Trustee Act, s 31(1)(c) and (d)).

When trustee powers are delegated for these reasons, the delegation must be by way of a power of attorney and deed of delegation. Note that a trustee cannot delegate trustee powers to a single co-trustee. When a trustee is absent from New Zealand for a significant period of time, even when an attorney has been appointed pursuant to a power of attorney and deed of delegation, care must be taken in deciding when the attorney can properly exercise the trustee’s powers because the existence of power of attorney does not necessarily negate the terms of a trust regarding how decisions are to be made.

Trustees must personally select and engage any agents that are appointed. Agents must be properly and appropriately instructed and supervised on an ongoing basis.

Consider the beneficiaries and act in the beneficiaries’ best interests

Acting in the beneficiaries’ best interests does not necessarily mean acting as requested by any beneficiary. Trustees must consider and balance the needs and wishes of all the beneficiaries. A trustee must remain impartial between beneficiaries. The needs of one beneficiary can only be considered ahead of the needs of another beneficiary if this is permitted by the deed of trust. A trustee’s duty to consider is met through due consideration and does not require that any distribution of capital or income be made.

Trustees need to be very careful to ensure that they do not simply follow, say, the settlors’ wishes, without giving their own due consideration to the needs of all the beneficiaries.

Do not profit from the position of trustee

Appointment as a trustee is a fiduciary appointment that requires the trustee to act in the best interests of the beneficiaries without having regard to the best interests of the trustee. A trustee cannot benefit from his or her position as trustee. A trustee cannot purchase or otherwise deal with trust property personally unless permitted to do so by the deed of trust or with the consent of all the beneficiaries of the trust. A trustee can only be remunerated for work carried out as a trustee if this is permitted by the deed of trust. A trustee should avoid situations in which personal interests will conflict with duties and obligations as a trustee. A trustee cannot assist a third party to claim against the trust because this is not in the interests of the beneficiaries to whom the trustee owes the utmost loyalty.

The Trusts Act 2019

Section 28 of the Trusts Act provides that there are default trustee duties in ss 29 to 38 of that Act that from 30 January 2021 must be performed unless modified or excluded. These are duties to:

• exert care and skill (s 29)
• invest prudently (s 30)
• not exercise powers for the trustee’s benefit (s 31)
• regularly and actively consider exercise of power (s 32)
• not bind the trustee to future exercise of discretion (s 33)
• avoid conflict of interest (s 34)
• act impartially (s 35)
• not profit from the trusteeship (s 36)
• act for no reward (s 37)
• act unanimously (s 38).

Care will be required to consider when and how the default duties should be modified and how the terms of current trusts will be interpreted by reference to the mandatory and default duties. When drafting and advising clients on trust deeds, consideration is required to determine the impact of the Trusts Act and what default duties should be modified or excluded. This will need to be made in light of existing trusts and how these are administered moving forward. Particular care will be required to determine whether a contrary intention clause for the purposes of the Trustee Act adequately negates the duty to invest prudently in s 30 of the Trusts Act.