The Act contains five mandatory duties, which cannot be excluded or modified by the trust deed, and ten default duties that apply unless expressly excluded or modified by the trust deed.
The mandatory and default duties will apply to existing trusts and any new trusts.
A trust is a fiduciary relationship in which the trustees hold and manage property for the benefit of the beneficiaries. It is only right that with the trustees’ role comes a host of responsibilities – duties.
One of the default trustee duties (under s32 of the Act) is to consider actively and regularly whether the trustee should be exercising 1 or more of the trustee’s powers.
This requirement of trustees is not new, but it is now expressed in a very clear and succinct terms.
There is no particular guidance in the Act on how trustees should discharge this duty, but there is an existing body of common law which provides that trustees should:
- Consider from time to time the management of the trust and whether and how the trustees should be making distributions.
- Each actively consider their decisions as trustee and put forward their thoughts, not being swayed by the settlor’s wishes or passively going along with the suggestions of other trustees.
- Be aware of their specific powers and only make decisions where they have a power to do so.
- Ensure they are informed about all the relevant circumstances when considering making distributions from the trust fund and not take into account irrelevant considerations.
In practical terms, the best way to ensure that trustees are meeting their obligations is for them to have regular trustee meetings. These meetings need to be held with some formality for both decision-making and record-keeping purposes. They also need to be open discussions where the trustees really consider the trust investments, the needs of the beneficiaries and what the path ahead for the trust should be.
There should be an agenda to ensure that there is a framework for ongoing issues to be discussed and new issues to be raised. Trustees must keep written minutes of their meetings, which should be then signed by all trustees. These minutes should then be kept with the core trust documents in accordance with the Act.
Trustees, lawyers and accountants should all be reviewing at their meeting agendas and minutes to see whether they support this new approach, and should consider including “review of trust assets and liabilities”, “beneficiary communication” and “update on beneficiaries” as a standard “segments” for trustee meetings. This will help focus trustees and also provide a record to show consideration is being actively and regularly given on a regular basis to the trust management.
This is particularly important for trusts which do not have an independent trustee as these trusts can often suffer from a lack of record-keeping for decisions.
It is also important for the large number of trusts in New Zealand which are not income producing (as they possibly only hold the family home as an asset). It is not uncommon for trustees to meet and review the trust management only when transactions are occurring for these trusts. As transactions can be infrequent, many trustees are not considering the exercise of their powers on a regular basis. The trustees of those trusts need to have a fresh think about how they approach their obligations as an ad-hoc approach to management will not be sufficient going forwards.
While this default duty can be deleted or modified by the trust deed, we think that this duty remains fundamental to the carrying out of a trustee’s duty and should not be modified, unless the unusual nature of the trust assets and purpose mean that regular review is redundant.
Any modification must ensure it does not limit another of the trustees’ duty: to consider at reasonable intervals whether the trustee should be making the basic trust information available to beneficiaries.