Thinking About Becoming a Trustee?

From time to time you may be asked to be a trustee of a trust for someone – be it a friend, colleague or relative.

While it might seem like a flattering thing to be asked, there are some risks and responsibilities associated with being a trustee and you should think seriously about becoming a trustee and do your homework on the trust itself and what it means to be a trustee before making a decision.  The following information may be useful if you are considering becoming an unpaid trustee who is not in a profession such as law or accounting.

A trust is not a separate legal entity in the way a company is.  The trustees of a trust are the legal owners of the trust property (so, for example, the house, bank account and shares are registered in the trustee’s names) but they hold the trust’s assets for benefit of the beneficiaries.  As a trustee, you are accountable to the beneficiaries for how the trust is administered.

Some of the documents you need to request and look at before making your decision are:

• The trust deed itself and any deeds that modify the original trust deed,
• Any memorandum of wishes that accompany the trust deed (these are the confidential wishes that the person who set up the trust – known as the settlor – may have written to give some guidance as to how they want the trust to operate in the future.
• The trust’s financials, balance sheets and any tax returns filed for the last few years,
• Records of the annual trustees meeting minutes for the last few years (a properly administered trust will have these for each year), and
• Any contracts that the trustees may have entered into such as a lease or an agreement to purchase a property.

Most trusts in New Zealand are discretionary family trusts.  The beneficiaries will have a right to be considered and a right to have the trust properly administered.  That means that you are not required to pay out money to a beneficiary just because they ask you to, rather you need to have considered them, their circumstances and the objectives of the trust regularly.  You need to be impartial and fair to the beneficiaries but not necessarily treat them all equally.

As you have to protect the trust’s property for the beneficiaries, you will also need to know and consider the assets of the trust in making your decision.  It may that the only asset in the trust is a family home but if there is money or an investment portfolio you will need think about what professional advisors the trust has been using or should be using to assist the trustees to make investment decisions.  Has the trust been declaring its income and paying tax when due?  Will you be investing the trust’s money (and should you be if the money is just sitting under a mattress!).  You can’t just be a passive trustee – you need to be actively involved in the decision making but you can rely on professional advice.  It is important to note that as a trustee you are not an “insurance” for the trust.  If the trust loses money, for example through a bad investment, unless the loss was directly caused by a breach of your trustee duty, then it is very unlikely that you will be held to be liable for that loss.

The new Trusts Act 2019 will come into force on 30 January 2021 and it will modernise and clarify the existing trust law.  For example, there will be a positive obligation on the Trustees to notify a beneficiary of the fact that they are a beneficiary and the contact details of the trustees.  Those beneficiaries then have a right to receive basic trust information such as the trust deed and other trust information (although there are some factors that may justify not providing some information requested).  While trustees have always had duties to the beneficiaries, the new Act divides them into Mandatory duties that cannot be modified by the trust deed and Default duties that can be modified by the trust deed.  It will be a legal requirement under the Act for the trustees to hold all of the core trust documents.  The maximum length of a trust is also being extended to 125 years.

A decision to become a trustee should not be made lightly. If you’re thinking about becoming one, please do not hesitate to get in contact the Wakefields Lawyers team for further advice at:

04 970 3600 or info@wakefieldslaw.com