Contents

Chapter 6
Trustees’ powers

Administrative powers

RECOMMENDATION

R7 The new Trusts Act should:
(1) Provide that a trustee has the same powers in relation to trust property that the trustee would have if the property were vested in the trustee absolutely and for the trustee’s own use, that is, the trustee has the powers of a natural person. ‚Äč
(2) Provide that in exercising any powers enabled under (1), the trustee is subject to the trustees’ duties, the standard of care and the purpose of the trust.  
(3) Include a schedule setting out some commonly used powers of a trustee which are included in the powers enabled under (1) and stating that “for the avoidance of doubt, the powers of a trustee granted under [the general powers provision in (1)] include, but are not limited to, the following: …”. The schedule should include the power to:
  • sell or lease trust property;
  • borrow money and create a security interest in the trust property;
  • give a guarantee;
  • seek legal, financial or other advice.
(4) Provide that this is a default provision capable of being overridden by the terms of the trust.

Powers of a natural person

6.5The current powers provisions in the Trustee Act are lengthy, complex sections that are difficult to follow and understand. They are overridden in most trust deeds as they do not reflect modern realities and are usually more restrictive than is desired.

6.6We recommend a flexible empowering provision that better allows for the variety of forms and uses of trusts. The recommendation satisfies the original intention of the current powers provisions by giving sufficiently wide powers to trustees to enable them to do all they need to do to manage trust property. While ostensibly broadening trustees’ powers, the recommendation will not harm beneficiaries’ interests because what trustees may do with trust property is always controlled by their duties to the beneficiaries or the purpose of the trust. Instead, broadening trustees’ powers is likely to give them the ability to make better choices in how the trust property is managed.

6.7The recommended provision should replace all sections of the current Trustee Act that address the administrative powers of trustees (sections 14−21, 24, 32−33 and 42A, 42B and 42D).

6.8The recommendation is a change of approach in relation to the business-related powers (sections 32, 32A and 33). In the Trustee Act these provisions intentionally restrict the scope of what a trustee can do with a business by allowing a trustee only to do what is needed to wind up a testator’s business and minimise the risk to the trust. In particular, section 32, which provides the default power to carry on business, applies only to testamentary trusts, and generally applies only for two years. The recommendation to give the trustee the same powers as a natural person, including powers in relation to a business, is more likely to accord with modern practice where many trusts are established in order to run businesses and trustees need broad, flexible powers relating to trust businesses.

6.9The introduction of the broad empowering provision was favoured by all submitters commenting on this proposal in the Preferred Approach Paper because it simplifies and modernises trust law and accords with common practice in deed drafting. One submitter commented on the need to emphasise that such a provision did not allow trustees to act outside of a proper purpose. We agree that the broad empowerment of trustees as recommended should not imply that trustees have the authority to do whatever they like even if they do have this capacity. The improper use of powers would be open to challenge as a breach of trust.

Schedule of powersTop

6.10The Commission’s view is that a schedule of powers should be included as it would allay any concern that the new approach is less clear than specific powers provisions. The list of powers to be included in the schedule under R7(3) should be limited to those powers where there could be confusion or uncertainty as to whether a trustee is entitled to act in certain circumstances, rather than attempting to be a complete list. The schedule would make it explicit to third parties dealing with trustees, for instance banks lending to trustees, that the trustees have the requisite powers. While a significant majority of submitters favoured the inclusion of a schedule of powers included within the general power, a few considered that the schedule was unnecessary and would over-complicate the law in this area. In response to these concerns our recommendation is that the schedule should not attempt to outline every power of a trustee or even all of those currently covered by the Trustee Act, which would make it complex and detailed. Instead it will focus on the powers that are likely to be of particular significance or subject to uncertainty.