TRUSTEE'S OBLIGATIONS
Family Trusts are in vogue. More and more people are creating trusts as a means of protecting property and managing assets. If you have already been down this road, you are more than likely one of the Trustees of your Family Trust. You may even be an independent trustee of another Family Trust in which you have no beneficial interest. It is therefore important that you understand the obligations of the Trustees of a Trust.
As Trustees you hold the assets on behalf of the beneficiaries and this gives rise to a number of obligations including:
An overriding duty to work prudently in the best interests of the beneficiaries and to show impartiality as between them.
A duty to familiarize yourself with the terms of the Trust deed.
A duty to exercise the care, diligence and skill that a prudent person of business would exercise in managing the affairs of others, when investing Trust funds. Trustees must guard against being in a situation where their interest is in conflict with that of the beneficiaries of the Trust.
As you can see there are considerable obligations imposed on you as Trustees. Therefore, the management of the Trust should be conducted on a formal basis to ensure that you and your fellow Trustees do not accidentally commit a breach of trust.
Trustees are under an obligation to formally record any decisions made regarding administration, distributions and investments. For that reason you should ensure that the Trustees meet at least annually. The minutes of these meetings should be recorded.
Remember that your actions as a Trustee may be judged many years after the event, when those criticizing will have the benefit of hindsight. Remember too, that prudence is a test of conduct not performance. If you can show by your records that your actions and decisions were the result of careful and proper consideration, then your conduct will be more likely to pass the prudence test, regardless of the outcome. For this reason a formal written record (Trust resolutions) will be your biggest protection if your conduct as a Trustee is ever challenged by a beneficiary.
You should never be reluctant to consult your professional advisors as the penalties for a breach of trust can be heavy and personal. It is always better to make sure that your actions or conduct are in order rather than putting yourself at risk.
If you require any further information relating to the creation or operation of a Family Trust, please feel free to contact Andrew Lemalu at Andrew Lemalu Law, 2 Robert Street, Ellerslie. Ph 579 0045 or email andrew@andrewlemalulaw.co.nz.