Contents

Chapter 5
Trustees’ duties

Indicative draft provisions

Subpart 2 — Duties of trustee
General
7 Types of trustee’s duties
A trustee has—
(a) mandatory duties (see sections 9 and 10); and
(b) default duties (see sections 11 to 23).

8 No requirement that beneficiaries be treated equally
(1) The exercise of a trustee’s duty does not require that all beneficiaries are treated equally, provided that beneficiaries are treated in accordance with the terms of the trust.
(2) Nothing in subsection (1) derogates from section 18.
Mandatory duties
9 What is trustee’s mandatory duty
A trustee’s mandatory duty is a duty that—
(a) the trustee must perform; and
(b) may not be excluded or diminished; and
(c) applies regardless of anything that may be contained in the terms of the trust.
10 Mandatory duties
The trustee of a trust is under the following mandatory duties:
(a) a trustee must be familiar with the terms of the trust; and
(b) a trustee must act in accordance with the terms of the trust; and
(c) a trustee must act honestly and in good faith; and
(d) a trustee must, in accordance with the terms of the trust, act for the benefit of the beneficiaries or for the purpose of the trust; and
(e) a trustee must exercise stewardship over the trust property for the beneficiaries or the purpose of the trust; and
(f) a trustee must exercise the powers of a trustee for a proper purpose.

Commentary

Clause 8 qualifies all duties, mandatory and default, by making it clear that the duties do not necessarily require equal treatment of beneficiaries. We have attempted to make it clear that although there is a default duty not to be unfairly partial, equal treatment is not required in order to balance competing concerns about the extent of a trustee’s discretion. Clause 10 sets out the mandatory duties of a trustee that cannot be excluded and apply in every trust. This statement of the mandatory duties of a trustee is not intended to limit or alter the duties applicable at law, and is intended to restate and summarise the current legal position. Clause 10 does not apply where it is found that the settlor’s overall intention was not to create a trust but some other form of relationship, in which case the contract may continue to have effect but the relationship will not be a trust. The purported exclusion of one of these duties in clause 8 may in fact be evidence that the settlor did not intend to create a trust, but some other form of relationship instead, and the certainty of intention, which is necessary for the creation of a trust, is not met (clause 5). The mandatory duties do not match exactly with those in the Financial Markets Conduct legislation, but they are likely to be complementary. Where the trust form is approaching a commercial entity, as is the case under that legislation, there are likely to be nuances in how these obligations apply and interact in practice.

Default duties
11 What is trustee’s default duty
(1) A trustee’s default duty is a duty that the trustee must perform unless it is modified or excluded by the terms of the trust or the statute under which the trust is created.
(2) A trustee’s default duty may only be modified or excluded to the extent that is consistent with the mandatory duties.
(3) However, a trustee may depart from the default duties under sections 19 (duty not to profit) and 20 (duty to act without reward) if all the adult beneficiaries agree.
(4) In subsection (3), adult beneficiaries means the beneficiaries with full legal capacity who are together absolutely entitled to the trust property.
12 Default duties
The default duties of a trustee are set out in sections 13 to 23.
13 Duty not to exercise power for own benefit
A trustee must not exercise a power of a trustee directly or indirectly for the trustee’s own benefit.
14 Duty to consider exercise of power
A trustee must actively and regularly consider whether the trustee should be exercising 1 or more of the trustee’s powers.
15 Duty not to fetter future exercise of powers
A trustee must not fetter the future exercise of the trustee’s powers.
16 Duty to avoid conflict of interest
A trustee must avoid a position where the interests of the trustee and the interests of the beneficiaries conflict.
17 Duty to keep proper accounts
A trustee must maintain a statement of the trust property that—
(a) adequately identifies the assets, liabilities, and income and expenses of the trust; and
(b) is appropriate to the value and complexity of that property.
18 Duty of impartiality
A trustee must not be unfairly partial to 1 beneficiary or group of beneficiaries to the detriment of the others.
19 Duty not to profit
A trustee must not make a profit from the trusteeship of the trust.
20 Duty to act without reward
A trustee must not take any reward for acting as a trustee, but this does not affect the right of a trustee to be reimbursed for the trustee’s legitimate expenses and disbursements in acting as a trustee.
21 Duty to act unanimously
If there is more than 1 trustee, the trustees must act unanimously.
22 Duty to exercise care and skill in management and administration of trust property
(1) A trustee who exercises any power of management or administration of the trust property must do so in accordance with the standard of care set out in section 25.
(2) In subsection (1), a power of management or administration of the trust property—
(a) includes a power, whether created by law or by the terms of the trust, to—
(i) hold trust property; and
(ii) maintain and develop trust property; and
(iii) deal with trust property; and
(iv) insure trust property; and
(v) carry on a business that is trust property; and
(vi) appoint an agent, nominee or custodian; and
(vii) appoint a delegate; and
(viii) any other power affecting the management or administration of trust property; but
(b) does not include the exercise of a discretion to distribute trust property to beneficiaries.
23 Duty to invest prudently
(1) When investing trust property, a trustee must invest prudently.
(2) For the purposes of subsection (1), a trustee invests prudently if the trustee complies with the standard of care set out in section 26.

Commentary

The list of default duties is intended as a non-exhaustive summary of some of the duties of trustees that apply unless and to the extent that they have not been modified by terms of trust. Further duties, rules and exceptions present in the rules of equity continue to apply. Although the duties in clauses 13 to 23 may be modified or excluded by the terms of a trust, it is not intended that they may do so to the extent that the mandatory duties would be breached. The terms of a trust may allow trustees to exercise discretion to benefit themselves, particularly if they are beneficiaries, or to be in a position where their personal interests conflict with those of other beneficiaries or with their role as a trustee. However, the terms of the trust would not be able to allow trustees to self-benefit without honestly considering the interests of other beneficiaries. Clause 11 allows the default duties to be impliedly modified. This is to account for existing trust deeds, which may not expressly modify these duties.

Subpart 3 — Trustee’s standard of care

24 Types of standard of care
This subpart sets out the standard of care—
(a) for the exercise of a power of management or administration of trust property (see section 22); and
(b) for investment of trust property by a trustee (see section 23).
25 Standard of care for exercise of power of management or administration of trust property
In the exercise of a power set out in section 22(2), a trustee must exercise the care and skill that are reasonable in the circumstances, having regard in particular—
(a) to any special knowledge or experience that the trustee has or holds the trustee out as having; and
(b) if a person acts as a trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that business or profession.

26 Standard of care for power of investment
In the exercise of a power of investment, a trustee must exercise the care and skill that a prudent businessperson would exercise in managing the affairs of others, having regard in particular—
(a) to any special knowledge or experience that the trustee has or holds the trustee out as having; and
(b) if a person acts as a trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that business or profession.

Subpart 4 — Trustee exemption clauses and indemnity clauses

27 Restriction on trustee exemption clauses
The terms of a trust must not limit or exclude a trustee’s liability for any breach of trust arising from the trustee’s own dishonesty, wilful misconduct, or gross negligence.
28 Restriction on trustee indemnity clauses
The terms of a trust must not grant the trustee any indemnity against the trust property in respect of liability for any breach of trust arising from the trustee’s own dishonesty, wilful misconduct, or gross negligence.
29 Indemnification with agreement of beneficiaries
(1) A trustee may be indemnified from the trust fund for a specific exercise or non-exercise of a trustee duty, power, or function if all the adult beneficiaries agree.
(2) In subsection (1), adult beneficiaries means the beneficiaries with full legal capacity who are together absolutely entitled to the trust property.
30 Invalidity of restricted exemption clause or indemnity clause
A clause of the terms of a trust is invalid to the extent that it purports to have the effect stated in section 27 or 28.
31 Adviser must alert settlor to liability exclusion or indemnity clause
(1) This section applies where a person who is paid to advise on the terms of a trust or the drafting of a trust deed (the adviser) recommends the inclusion of, or includes, a liability exclusion or indemnity clause in the terms of the trust.
(2) The adviser must, before the creation of the trust, take reasonable steps to ensure that the effective settlor is aware of the meaning and effect of the clause.
(3) The liability exclusion or indemnity clause has no effect with respect to an adviser who is a trustee of the trust and who is in breach of subsection (2).
(4) In this section, liability exclusion or indemnity clause means a clause that has the effect of—
(a) limiting or excluding the liability of a trustee for negligence; or
(b) granting a trustee an indemnity against the trust property in respect of liability for negligence.

Relief of personal liability

32 Court may relieve trustee from personal liability
(1) If subsection (2) applies, the court may relieve a trustee who is or may be personally liable for any breach of trust from personal liability for the breach.
(2) The court may relieve the trustee if it appears to the court that−
(a) the trustee has acted honestly and reasonably; and
(b) the trustee ought fairly to be excused for the breach of trust.
(3) The court may relieve the trustee in whole or in part.

Commentary

Clauses 27 and 28 accept that trust deeds may legitimately seek to exempt liability or indemnify a trustee for acting negligently. These clauses relate to liability to beneficiaries for a breach of trust. The requirement in clause 31 that an adviser must take reasonable steps to ensure the settlor is aware of the meaning and effect of any exemption or indemnity clause is not intended to require that a settlor receive independent legal advice. The use of the term “effective settlor” in clause 31(2) is intended to convey the meaning of a “real” settlor, who is likely to be but not necessarily the original settlor, as opposed to a nominal or later settlor. We intend that each real settlor is advised only the first time that they settle property on to the trust. Clause 32 retains the court’s power, currently in section 73 of the Trustee Act 1956, to relieve trustees of liability for breach of trust in certain cases.

Subpart 5 — Trustees’ obligations in relation to information

Retention of documents by trustees

33 Trustee must retain core documents
Each trustee of a trust must retain, so far as is reasonable, copies of the following documents relating to the trust:
(a) the trust deed; and
(b) any variations made to the trust deed or trust, including variations made to the beneficiaries of the trust; and
(c) a list of all of the assets currently held as trust property and liabilities of the trust; and
(d) any records of trustee resolutions made during that trustee’s trusteeship; and
(e) any written contracts entered into during that trustee’s trusteeship; and
(f) any accounting records and financial statements prepared during that trustee’s trusteeship; and
(g) deeds of appointment and retirement of trustees; and
(h) any letter or memorandum of wishes from the settlor or settlors; and
(i) any documents referred to in paragraphs (a) to (h) that were retained by a former trustee during that person’s trusteeship and passed on to the current trustee.
34 Retention of documents where there is more than 1 trustee
If there is more than 1 trustee of a trust, a trustee complies with the obligation in section 33 if—
(a) every trustee holds copies of the documents in section 33(a) and (b); and
(b) one of the trustees holds copies of the other documents in section 33 and makes those documents available to the other trustees on request.
35 Duration of retention of documents
A trustee must retain, so far as is reasonable, the documents for the duration of the trustee’s trusteeship.
36 Trustee must pass on documents
At the time that a trustee ceases to be a trustee of a trust, if the trust continues, the trustee must give at least 1 replacement trustee or continuing trustee the documents that the trustee holds at that time.
37 Record-keeping requirements under other legislation
Nothing in this Act affects the obligations of a trustee to keep records under other legislation.

Commentary

Clause 33 lists the essential documents that a trustee must retain in fulfilment of the trustee’s duties. The provision makes this requirement clear for trustees. Clause 33 is not intended to imply any special status to the documents listed other than that they must be retained. In particular, this provision does not imply that a letter or memorandum of wishes is necessarily a trust document for any other purpose, including disclosure to beneficiaries. The use of the term “so far as is reasonable” is intended to account for situations where it is unduly difficult to retain the documents, for instance where documents are inadvertently lost or destroyed. It is also intended to imply that it may not be necessary for every low-level contract or account to be retained if such contracts and transactions are summarised in other documentation. Clauses 34 to 37 clarify details about the document retention obligation.

Provision of information to beneficiaries: general obligation

38 Trustee must provide sufficient information
A trustee must provide sufficient information to sufficient beneficiaries to enable the terms of the trust to be enforced against the trustees.

Provision of information to beneficiaries: specific obligations

39 Definitions for purposes of sections 40 to 44
In sections 40 to 44,—
qualifying beneficiary means a beneficiary whom the settlor intended to have a realistic possibility of receiving trust property under the terms of the trust
representative
means the parent, guardian, or property manager of a beneficiary who is a minor or in respect of whom a guardian or property manager has been appointed
trust information
(a) means any information—
(i) regarding the terms of the trust, the administration of the trust, or the trust property; and
(ii) that it is reasonably necessary for the beneficiary to have in order for the trust to be enforced; but
(b) does not include reasons for trustees’ decisions.
40 Presumption that trustee must notify basic trust information
(1) There is a presumption that a trustee must, as soon as is practicable, provide every qualifying beneficiary or representative of a minor or incapable qualifying beneficiary with the information set out in subsection (3).
(2) However, the presumption does not apply if the trustee reasonably considers that the information should not be provided (to be determined by consideration of the factors set out in section 42(2)).
(3) The information referred to in subsection (1) is—
(a) the fact that a person is a beneficiary of the trust in question; and
(b) the names and contact details of the trustees; and
(c) the right of the beneficiary to request a copy of the trust deed or trust information.
41 Presumption that trustee must provide information on request
(1) There is a presumption that a trustee must within a reasonable period of time provide a beneficiary with the trust information that the beneficiary has requested.
(2) However, the presumption does not apply if the trustee reasonably considers that the information should be withheld (to be determined by consideration of the factors set out in section 42(2)).
42 Procedure for deciding against provision of information
(1) For the purposes of sections 40 and 41, a trustee must not decide against providing information unless the trustee has taken into account—
(a) the trustee’s obligation under section 38; and (b) the factors set out in subsection (2).
(2) The factors referred to in subsection (1)(b) are the following:
(a) the nature of the interests held by the beneficiary and the other beneficiaries of the trust, including the degree and extent of the beneficiary’s interest in the trust or the beneficiary’s likely prospects of receiving trust property in the future:
(b) whether the information is subject to personal or commercial confidentiality:
(c) the expectations and intentions of the settlor at the time of the creation of the trust as to whether the beneficiaries as a whole and the qualifying beneficiary in particular would be provided with information:
(d) the age and other circumstances of the beneficiary:
(e) the age and circumstances of the other beneficiaries of the trust:
(f) the effect of providing the information on the trustees, other beneficiaries of the trust, and third parties:
(g) in the case of a trust that is a family trust, the effect of providing the information on—
(i) relationships within the family:
(ii) the relationship between the trustees and some or all of the beneficiaries to the detriment of the beneficiaries as a whole:
(h) in a trust where there is a large number of beneficiaries or there are unascertainable beneficiaries, the practicality of providing information to all beneficiaries or all members of a class of beneficiaries:
(i) the practicality of providing some or all of the information to the beneficiary in redacted form:
(j) the practicality of imposing restrictions and other safeguards on the use of the information (for example, by way of an undertaking, or restricting who may inspect the documents).
43 Beneficiary may be required to pay cost of providing information
The trustee may require the beneficiary to whom trust information is provided under section 41 or in accordance with the terms of the trust to pay the reasonable cost of providing that information.
44 Application to court
‚Äč(1) The trustee may apply to the court for directions before deciding against providing the information under section 40 or 41.
(2) A beneficiary may apply to the court for an order that the trustee supply the beneficiary with the information the beneficiary has requested.

Commentary

Clause 38 provides the general mandatory obligation regarding the provision of information to beneficiaries. This general obligation will not necessarily require that the trustee informs every beneficiary of the trust that they are a beneficiary. Clause 38 is the obligation which underlies the more specific presumptions in clauses 40 and 41. The terms of a trust may provide another process for notifying and informing beneficiaries, which, so long as it meets the general obligation in clause 38, will be valid. It is intended that these provisions leave open the possibility of a secret trust or a trust that directs that certain beneficiaries are not to be given information but in each case the principle that sufficient information must be provided to sufficient beneficiaries such that the trust is able to be enforced must be adhered to. We do not intend that trustees would be required to release insignificant, minor details to beneficiaries.

In deciding which beneficiaries to notify under clause 40, a trustee must determine who are “qualifying beneficiaries”. This will require an exercise of discretion by the trustee but ought to be done in a way that gives broad effect to the settlor’s intention and does not fetter the trustee’s discretions regarding which beneficiaries receive distributions of trust property. A trustee may determine that the presumption to notify a specific beneficiary of the basic trust information does not apply or the presumption to provide the information requested by a beneficiary does not apply, but only after considering the list of factors in clause 42(2). In considering these factors, the trustee must balance the overarching principle that sufficient information must be given to sufficient beneficiaries to enable the trust to be enforced and the obligations to notify and provide information against various considerations arising from the factors listed that may indicate that information should not be given, such as the potential for harm to the trust or beneficiaries. The trustee will also need to consider the trustee’s duties in exercising these discretions.