Home What is a Family Trust? Reasons for Family Trusts How a Trust works and other FAQs Trust Set Up and Personal Wishes Price List Welcome Book and the Next Step Who are we? Contact Us Our Newsletter Order Now
Sign up to our newsletter

Running a Trust

1)  Trustees have a duty of efficient management

This means preserving the trust property. Once a trustee has accepted his or her position the trustee is duty-bound to become familiar with terms and conditions of the Trust deed and relevant documents. It also means to manage the trust fund in an efficient and economic manner.
In practice:

  1. Familiarise yourself with the Trust Folder or put together an indexed Trust Folder to hold documents, accounts and correspondence. Organise a secure but accessible place to keep all Trust Documents. 2. Get to know the terms and conditions of the Deed of the Trust, The Wills, memorandum of Wishes and relevant legislation, books, letters, DVDs etc.
  2. Make a schedule of Trust Property.  Take stock of the Trust assets and liabilities.
  3. Identify the beneficiaries and consider specific situations. Make a   schedule of all listed Beneficiaries and those who have received distributions in the past.
  4. Set up a minute Book recording all events concerning the trust, all decisions and transactions by the trustees concerning the in business of running the trust. Also ensure that background and reasons for the decisions is give so that the Minute book acts as explanation for what has happened in the past. Also ensure that it is a record all decisions by the Trustees, which are called the resolutions of Trustees.
  5. Trustees must ensure that the assets have actually been sold to the trust and that the original documents such as sale agreements and acknowledgements of debt are in place. Share transfer should be available and trustees must be registered as the shareholders
  6. Set up instructions and investigate that the Trust matters are being managed properly. Monitor reviews as to basic management of the Trust. List the issues that are important.
  7. If a new trustee discovers a discrepancy or breach of trust then it is the trustee’s duty to take steps to rectify the matter. This also applies to assets such as invested funds. If a new trustee believes they are invested in securities that are not prudent then it is up to the trustee to take the necessary step to improve that situation. Financial advice is a must in such a case.
  8. Trusts, which own income-producing assets, where regular payments need to be made to beneficiaries or where gifting procedures take place, need special attention.  Ensure all amounts are taken into account. Also ensure no personal payments of Trustees take place through those accounts.  Keep costs within reasonable limits

2) Trustees also have a duty of loyalty. 

It means they must act in the best interest of the beneficiaries and be impartial. They must not profit where there is a conflict.  Their own personal interests must stand back. They must protect the interests of the beneficiaries.   This means they must act and observe the terms of the Trust itself and act solely for both the economic wellbeing of the trust and the personal care and welfare of all the beneficiaries. It is a fundamental concept of trust.

Sometimes it is difficult for Trustees to observe both terms of trust whilst at the same time acting in the best interest of all the Beneficiaries. In the latter part of the last century we have seen a real change in the way Trustees approach their role in this respect. We have seen that more emphasis has been placed on the wellbeing of the beneficiaries and not the terms of the Trust, and in the last 10 years we have even seen that the Trust Deed itself has evolved to provide Trustees with every conceivable power and discretion.  Essentially it enables Trustees to make decisions ultimately coinciding with the best interests of the wellbeing of all the beneficiaries. In some trusts we see that Settlors have very strong views as to both terms and conditions of trust and they should be respected. However, if those consequences of adhering to those terms will detrimentally affect the interest of the beneficiaries a Court of Law may sometimes vary those terms. As we have seen in one such settlement a Court of Law effectively struck out a provision that “ if any beneficiary married a Roman Catholic “, then that beneficiary would automatically lose his or her benefit.  A Trustee’s duty of loyalty applies to all beneficiaries equally, where they have similar rights, and fairly where their rights are not similar.

If Trustees would take a profit from the trust then they will become accountable to the beneficiaries for all of that profit received.

When a Trustee is the purchaser of Trust Property there are two rules, which should be adhered to:

  1. All Trustees are absolutely incapacitated to purchase Trust Property for themselves, unless such a Trustee is authorised to do so by either the Settlors or a Court of Law.
  2. Trustees may purchase Trust Property but only where the consent of all the Beneficiaries is given, and all Beneficiaries have been properly informed as to the conditions of the purchase, and the Trustees are paying a fair price for that asset. When we look at such capacity rule we see that it obviously limits the ability of the Trustees to proceed with any desired purchase, because they must obtain the consent of all the Beneficiaries, even the infant ones.  That effectively means that they are unable to give their consent. The Trustees who breach such rules of purchase effectively place themselves in conflict between their personal interest, and those of the Beneficiaries. It means Trustees cannot engage in any activities that place their own interests in conflict with duties as trustees. It also prohibits them from accepting any further offers or positions that may possibly conflict with their position as trustees. It should also be known that this duty extends to beneficiaries in the future as well.  In some cases they will breach the trust if they favour the interests of some beneficiaries above others.   We call this the duty of impartiality.

3) Trustees have a duty to keep proper accounts. 

It means they must make suitable information available to the beneficiaries because they are entitled to it on request. It is information about the trust, and how it is being managed such as accounting records like financial statements including tax returns etc. The trustees are therefore under a duty to render unto all beneficiaries an account of all transaction both financial and otherwise. Those trust records must demonstrate not only the way in which they have performed in following their duties in preservation of the trust property, but also how they adhere to the terms and conditions of the deed of trust. This is an integral part of their duties and the accounts and records must therefore reflect accurately the current position of the trust and its property.

Trustees have been engaged to perform this duty and their inexperience or incapacity will not be an acceptable reason as to why proper records have not been maintained.

Accounts should show all payments made by trustees and together with supporting documentation such as invoices, or when they are not available, minutes or minute book with the evidence to support purchases etc.

Accounts for the trust should not be destroyed at determination of the trust itself, even if the beneficiaries give release to do that and have given indemnities to the trustees. This is, because the records may be required at a later date, when allegations are made against the trustees by beneficiaries.

Trustees must correct any errors that have occurred through negligence or mistakes. An example is a simple mistake like an overpayment to a beneficiary.

The duty to render accounts to beneficiaries is not only limited to financial accounts. Beneficiaries have the right to inspect any item related to management or distribution of property. Accordingly they have a proprietary interest in the documents of title of trust and can demand their inspections.  Only the privacy of sensitive or confidential communications will be a prohibitive reason to deny such access. 

Duty to disclose information should not be limited to information only requested by the beneficiaries, but instead they should inform every beneficiary who is of full age and capacity of the full rights under the trust, unless it is not in their best interest or would place an unacceptable burden on the beneficiaries such as:

  • Confidential communications
  • Blind trusts such as where a settlor of a trust enters the political arena and hands over the management of the assets to a trustee for the benefit of beneficiaries of whom that person may also be one.
  • Property settled on parents or guardians for infant beneficiaries.
  • Where the trust assets are too small to warrant keeping of accounts. 

4) Trustees also have a duty to act personally. 

It is a rule that people who occupies the fiduciary position of trustee that they cannot delegate that duty to others.

Trustees will take upon themselves the management of property for the benefit of others, and they have no right to shift their duty onto other persons.  All trustees must take part in all decisions and all trustees must agree unanimously with all decisions. In some trust deeds majority rule clauses apply and trustees should only use such clauses as a last resort, and only if all the trustees are unable to agree on a particular course of action. In some cases where no agreement can be found it is better for a trustee to retire, otherwise the disagreeing trustee could be liable for actions of the co-trustees. This also applies to those trustees who rubberstamp the actions of their co-trustees, without being involved themselves.  Trustees are jointly and severally liable for all decisions, and the delegation of responsibilities is only allowed in certain limited circumstances:

  1. Where the Trust Deed allows that;
  2. Where the trust funds are situated outside New Zealand;
  3. They may even get agents to carry out their decisions. They should not allow others to dictate to them or blindly follow their agent’s advice, when others act for them, such as when the trustees are unable to perform those tasks, like employment matters or investment portfolios.  Accountants and Investment planners may assist them in formulating and implementing their finance and investment strategies.
  4. Where loan documents specifically refer to their independent status and this is according to the deed of trust. 

5) The duty to consider.

This is important because it shows the trustees should consider the instructions of Settlors that are given in Wills, and recorded wishes or DVDs or otherwise. They can take professional advice from lawyers, accountants, financial experts and others. They should appoint, instruct and supervise such advisers properly. It is important to follow these duties because fulfilment of one’s duties as a trustee reduces risk and avoids liability.

A trustee’s management performance will be measured against the standard of an ordinary prudent person of business managing the affairs of others. They must take precautions that others would take.

A high standard of care is required of the trustees and professional people such as lawyers, accountants and financial advisers who are business people investing money on behalf of others. Because trustees have powers it does not automatically follow that they should act in all cases. Trustees have discretion whether or not they use their powers and act in specific cases. They should consider whether they should act. Liability of the trustees is a big issue. The wise conclusion is to minute all decisions, and it is the only way in which trustees can escape liability.

A Minute book, which is properly maintained, is the best insurance for all trustees for present and future:

Contact us to discuss your family trust requirements.
Click here >