Trustees' Duties
Family Trusts are becoming increasingly common in New Zealand. The Reserve Bank has recently said that one fifth of household assets are held in trust.
The trustees of a trust owe a number of duties to the beneficiaries of that trust. These duties should not be taken lightly as they are enforceable by the beneficiaries through the Courts.
Trustees need to keep the following core duties at the forefront of their mind when administering a trust.
1. DUTY TO ACT IN GOOD FAITH
A trustee must act honestly and in good faith in relation to trust property. Before making a decision the trustees must inform themselves of matters that are relevant to the decision. This includes taking any expert advice that may be required. A trustee must not allow a situation to develop where a conflict arises between the trustee’s personal interest and the trustee’s duty as a trustee.
2. DUTY TO ACT PERSONALLY
Trustees must not delegate their discretion to make decisions, except as permitted by the terms of the trust deed or by statute. A trustee may only delegate their duties in full if they are out of New Zealand or are about to become temporarily incapable of performing their duties as a trustee by reason of physical infirmity.
3. DUTY TO OBSERVE THE TERMS OF THE TRUST DEED
Trustees must conduct themselves in accordance with the trust deed. Failure to carry out the terms of the deed is a breach of trust. Accordingly it is important that trustees familiarise themselves with the deed. It does not matter that the trustee had a proper motive in failing to observe the terms of the trust deed.
4. DUTY TO ACCOUNT TO THE BENEFICIARIES FOR THE ADMINISTRATION OF THE TRUST
Trustees have an obligation to keep all appropriate financial accounts. The records must show particulars of the trust fund and how the trustees have dealt with it. Trustees must also supply information to the beneficiaries up their request.
5. DUTY TO ACT RESPONSIBLY, WITH DUE DILIGENCE AND PRUDENCE
A trustee must act with due diligence and prudence in the discharge of their duties. Business of the trust must be conducted in the same manner that an ordinary prudent business person would exercise in managing the affairs of others. This duty is extended where a trustee’s business includes acting as a trustee or investing money on behalf of others.