Under New Zealand law a trustee is a person appointed to hold the trust’s assets for the benefit of beneficiaries. The trustees are obliged to act honestly and in good faith for the benefit of all the beneficiaries. Especially important are the obligations on a trustee when they are making decisions on behalf of beneficiaries (see end notes!)
The Trust Act 2019 comes into force on the day that is 18 months after the date on which it receives the Royal assent. Date of assent was 30 July 2019 with commencement on 30 January 2021. "The whole underlying principle of the new act is that beneficiaries should have sufficient information to be able to be sure that trusts are being run correctly, and that trustees are doing their jobs," said Perpetual Guardian lawyer Henry Stokes.
There are three groups of behaviours the Trusts Bill codifies. The first are the "mandatory" duties which a trustee must follow are set out in the act. They are simple, and amount to taking the trust seriously.
A trustee must know the terms of the trust.
A trustee must follow the terms of the trust.
A trustee must act honestly, and in good faith.
A trustee must act for the beneficiaries of the trust.
A trustee must exercise the powers they have for a proper purpose.
The second group of behaviours are governed by the "default" duties for a trustee to act with reasonable care and skill, to invest prudently, not to do things for their own benefit, and to act impartially towards beneficiaries.
The third group of duties are about the information trustees must keep, and which of them must be made available to beneficiaries. These are to keep records (including of trust assets, trustee decisions, and changes to the trust), and to make them available to sane, adult beneficiaries.
Trustees should also: * Understand that they may be personally liable for taxes and other charges such as property rates, payable by the trust. * Acknowledge that they may be personally liable for trust debts, or guarantees given by the trustees. * Be trustworthy, as they must manage the trust’s affairs in a way that will provide the maximum benefits possible to the beneficiaries.
The duties and responsibilities of trustees are to: * Treat the beneficiaries in an even-handed manner and act in their best interests. * Not make any profit from being a trustee, and act without being paid (except for refunds of out-of-pocket expenses) unless it’s provided for in the Will. * Invest prudently (s13E of the Trustee Act 1956 sets out a number of factors which trustees should take into account, where appropriate, when making investment decisions). * Not delegate any of the trustees’ responsibilities, unless permitted to do so. * Take an active part in the trust decisions and the exercise of trustees’ discretions – trustees must not agree in advance to place a limitation or restriction on the future exercise of any discretion. * Act unanimously. * Where appropriate, take specialist accounting advice to ensure the estate complies with its tax obligations. * Keep proper accounts and give information to beneficiaries as required.
Duty of Loyalty Trustees must observe the terms of the trust and manage the trust assets in the beneficiaries’ best interests. The main aspects of this duty are:
Trustees should act exclusively in the best interests of all the beneficiaries of the trust, present and future.
Trustees should act impartially for the beneficiaries and in practical terms gain an understanding of the beneficiaries’ circumstances.
In most cases, trustees must not profit from their position as trustee, although a trustee may receive benefits from the trust in their capacity as a beneficiary of the trust.
Trustees have a general duty to avoid putting themselves in a position of conflict between their duties to the trust, their personal interests, or their duty to others.
Courts have also held that trustees are subject to a duty of care. This means that trustees must take the care of an ordinary person of business in the circumstances of the trust. A professional trustee, who gets paid to act as a trustee, is held to an even higher standard of care.
If trustees do not comply with any of their duties, beneficiaries of the trust may bring a claim against the trustees in the High Court for breach of trustee duties.
Civil actions for breach of trust Beneficiaries are entitled to enforce a trust. Duties imposed on trustees can be enforced by beneficiaries pursuing equitable remedies through the courts. A breach of trust is primarily a breach of an equitable obligation by trustees and may lead to civil liability. Where they breach their duties, trustees are personally liable for any losses that would not have arisen if they had not done so. Beneficiaries can bring a civil claim against trustees to restore the trust funds and to make good any loss caused by the breach of trust.
In the case of Lee and Public Trust v Torrey and Folwell  NZHC 2135, the Judge confirmed that a liability exclusion clause cannot override an irreducible core of trust obligations. Where trustees have breached a duty which is fundamental to the concept of trust they cannot rely on the exclusion. The fundamental duties to act honestly and in good faith had not been met and so the liability arising from such a breach was not excluded. This decision is a timely reminder that trustees act for others and not themselves. Even if they are also discretionary beneficiaries of their trust, before they take anything from it, they must act in a manner which demonstrates that they are considering the interests of other beneficiaries alongside their own in a fair and measured way. They will bear the practical burden of proving this if their decision is challenged. Even a broad exclusion of liability will not save a trustee from liability for a decision which involves self dealing and which fails the test of having been reached in a good faith exercise of trust powers and discretion's.
The published paper, The Duties, Office and Powers of a Trustee, considered the duties of trustees. As discussed there, trustees must adhere strictly to the terms of their trust and carry out their duties as trustees in a diligent and prudent manner. If they fail to adhere to the terms of the trust, or fail to carry out their duties, they breach their trust.
Sources of information from: http://www.legislation.govt.nz/…/0038/latest/DLM7382815.html https://nzlaw.co.nz/ http://www.morrislegal.co.nz/ http://ip31.publications.lawcom.govt.nz/…/Duties+of+trustees https://www.taxcounsel.co.nz/