By Hayley Boud

Trustee’s Duties If you have been named the trustee of a will or a trust, you have been entrusted to manage property on behalf of another. This post focuses on the duties of trustees of trusts but the same principles can be applied to trustees of wills. There are a number of central elements that is required in order to be a trustee:

You are expected to take care of that property as if it were your own;
You must never place yourself in a position of conflict of interest;
You are obliged to follow the law codified in statute and assisted by case law; and
You may sell the property, invest it, maintain it and do anything with it that will benefit it.

As a trustee you:

Are the legal owner of the trust property;
Must manage the trust property in the best interests of the beneficiaries;
Must be familiar with the trust deed;
Comply with the terms of the trust deed;
Act impartially;
Must account to the beneficiaries;
Invest trust funds prudently; and
Have significant powers including the power to sell, lease, mortgage, develop, grant advancement and maintenance etc.

Know the trust’s terms There is no defence for ignorance if you make a mistake as a trustee because you didn’t know the terms of the trust. Therefore, I strongly recommend that you read every word of the trust deed as soon as you are appointed as trustee. You may be held personally liable if you fail to make suitable inquiry, even after resigning as a trustee.

Adhere to the trust’s terms You must adhere to the terms of the trust deed completely. As a trustee you may be under pressure from beneficiaries to act against the terms of the deed. If the trust deed allows you to vary the trust, you will need to follow that process. If the trust deed does not make mention of how to vary the trust terms, it may be possible to vary the trust terms under section 64 of the Trustee Act 1956.

Under section 64 of the Trustee Act, the court is able to grant power to trustees (which is contrary to the terms of the trust deed or the intention of the settlor) provided all those with a beneficial interest consent or are represented, even where the trust deed expressly prohibits such a transaction. This is to facilitate the expedient management and administration of the trust.

Under section 64A of the Trustee Act, the court may approve the varying or revoking of a trust or enlarge the powers of the trustees on behalf of those beneficiaries who have no locus standi such as minors, disabled, unborn, unknown or future interests.

An essential element of trustee’s duties is to seek the direction from the court in situations of uncertainty where applying the terms of the trust as they stands creates problems, frustrations or inequities. In such situation, as a responsible trustee you should seek approval from the court for approval to vary the trust deed.

Duty to pay beneficiaries As a trustee, you have an obligation to transfer property to the beneficiaries or persons authorised to be paid under the trust deed or will. You need to be satisfied that distributions are made in accordance with the aims and purposes of the trust.

Duty to be active and not to delegate You need to actively participate based on thorough knowledge and understanding of the terms of the trust. The only exceptions are if there is a clause in the trust deed providing for delegation or under section 31 of the Trustee Act if you are outside of New Zealand or are about to depart or you expect to be temporarily unavailable.

Duty to act impartially You must properly dispose and use of the trust property so as to avoid benefiting one beneficiary at the expense of others.

Duty to make trust accounts and documents available to the beneficiaries Case law has provided that trustees owe a fiduciary duty to beneficiaries to keep them informed and to render accounts while balancing this against commercial sensitivity. In a discretionary trust, it is the trustees who determine what should be disclosed.

Duty to act unanimously All trustees must act unanimously. In Rodney Aero Club v Moore [1998] 2 NZLR 192, the court held that the licence to the Aero Club was unenforceable because the trustees had not acted unanimously when signing the licence agreement.

Duty to invest Under section 13B of the Trustee Act, you have a duty to invest prudently, exercise skill, care and diligence that a prudent person of business would exercise in managing affairs of others.

Under section 13F, you have a duty to take into account a number of factors when exercising your power to invest:

Desirability of diversifying trust investment;
Need to maintain real value of capital or income of trust;
The likely income return; and
The likelihood of inflation affecting the value of the proposed investment or other property.

Section 13D requires you comply with the provisions of the trust deed when undertaking investment. This section also provides for the ability of a trust deed to limit or totally exclude the obligations of trustees with regard to their obligations.

Section 13M allows a court to consider whether or not a trustee is liable for a breach of duty for failing to make investment decisions in a manner expected of a prudent business person. In doing so the court will consider:

Any diversification to attempt to mitigate losses due to stock market crash; and
Any appropriate investment strategy that had been adopted.

Therefore, we recommend that you invest in a mixed portfolio to reduce your risk of exposure.

In Cowan v Scargill [1984] 2 All ER 750, the court held that the focus of investment needs to be on the best interests of the beneficiaries. A trustee cannot decline to invest funds for social or political reasons where it would benefit the beneficiaries.

Trustees held personally liable

Failure to act impartially and failure to invest prudently As a trustee, you can be held personally liable for failure in any of your duties as a trustee. In Re Mulligan (deceased) [1998] 1 NZLR 481, the trustees did not conduct themselves in an impartial manner bearing in mind the interests of all the beneficiaries. They had breached their duties as trustees by not investing the capital amount of interest in a manner that would have kept abreast of inflation. The court held that the trustees were personally liable to pay $170,640 to the residual beneficiaries.

However, courts have also held that trustees cannot be expected to be prophetic about performance of stock market. It is not inherently negligent for trustees to retain stock in a period of declining market.

Failure to adhere to the terms In Wong v Burt [2005] 1 NZLR 91, the trustees were personally liable to pay back $250,000 to the trust. In that case, Mrs Wong was concerned about the lack of provision in her husband’s will for her grandchildren so she requested the trust advance $250,000 to her which she lent to her deceased’s daughter’s estate and forgave the debt through gifting. As this was contrary to Mr Wong’s will, the court held that to transfer the money to Mrs Wong was a deliberate scheme to subvert the terms of the will, therefore the conduct amounted to fraud. To vary a trust without court approval runs the risk of the trustees being personally liable.

For more information please feel free to contact one of our trust specialists on 07 838 0808 or hayley@ghlaw.co.nz