Trusts

There’s been a lot of talk about the new Trust Act 2019 (the Act), which came into effect in January 2021, but it is nothing to fear. Trusts form a valuable part of the legal toolbox for a number of good reasons and the Act hasn’t changed this.

The Act is intended to make trust law simpler and more transparent for the general public. One of the ways it does this is by giving clarity on the roles and responsibilities of trustees. It’s important, that if you are a trustee you understand your obligations. To help make it easy our team have summarised the mandatory obligations and the default duties.

The mandatory obligations are duties that may not be modified or excluded by the terms of the trust. Any exclusion of a mandatory duty will have no effect. These include:

• know the terms of the trust – meaning you know and understand what the purpose of the trust is;
• act in accordance with the terms of the trust – in other words, it’s up to you to make sure the trust is doing what it was set out to do and make decisions accordingly;
• act honestly and in good faith – this goes without saying;
• act for the benefit of the Beneficiaries or to further the permitted purpose of the trust; and
• exercise your powers as trustees for proper purposes – meaning you can’t abuse your powers as a trustee.

The default duties are duties that must be performed by the trustee unless they are modified or excluded by the terms of the trust – and are subject to certain limits.

The default duties include:

• a trustee must exercise the care and skill in administering a trust that is reasonable in the circumstances;
• when investing, a trustee must exercise the care and skill that a prudent person of business would exercise in managing the affairs of others;
• a trustee must not bind or commit trustees to a future exercise or non-exercise of discretion;
• a trustee must avoid a conflict between the interests of the trustee and the interests of the beneficiaries;
• must act impartially in relation to the beneficiaries and must not be unfairly partial to one beneficiary or group of beneficiaries;
• must not make a profit from the trusteeship of a trust;
• a trustee is not to exercise power for own benefit;
• has a duty to consider exercise of power;
• must not take any reward for acting as a trustee, but this does not affect the right of a trustee to be reimbursed for the trustee’s legitimate expenses and disbursements in acting as a trustee; and
• if there is more than one trustee, the trustees must act unanimously.

There are a few other duties that trustees are required to carry out, which include:

• keeping all trust information and documents stored for the life of the trust; and
• making available to every beneficiary or representative of a beneficiary the basic information relating to the trust.

If you would like some advice on whether a trust is right for you, or if you are a trustee or beneficiary that has questions regarding the Act – our team is here to help, you can contact us 03 308 3191 or email law@rmfsilva.co.nz.