Power to appoint agents, nominees and custodians
R10 The new Trusts Act should adopt the approach taken in section 5 of the Select Committee version of the Trustee Amendment Bill 2007, which proposed new sections 29–29E to replace section 29 of the Trustee Act 1956, with amendments. The redrafted provision in the new Act should:
(1) Allow a trustee to employ an agent to exercise or perform a trustee’s “administrative functions”. “Administrative functions” should be defined as any power, right or function other than a “trustee function”, that is necessary or desirable to exercise or perform in executing the trust, administering any asset of, or property that is subject to, the trust, or both. The provision would define a “trustee function” as any of the following powers, rights or functions vested in the trustee:
(a) a function related to a decision regarding the distribution, use, possession, or other beneficial enjoyment of trust property;
(b) a power to decide whether any fees should be paid or other payment should be made out of income or capital;
(c) a power to decide whether payments received should be appropriated to income or capital;
(d) a power to appoint a person to be, or to remove, a trustee of the trust;
(e) a power of appointment (including a power to appoint a person to be, or to remove, a beneficiary);
(f) a power to appoint or change the distribution date of trust funds;
(g) a power to resettle the trust, or to amend, revoke, or revoke and replace terms or provisions of a trust deed;
(h) a right conferred by this Act to apply to the court; and
(i) the power to authorise an agent to perform any of the functions of the trustees or trustee.
(2) Require trustees to keep under review the agency arrangements and the way the arrangements are being put into effect, to consider whether to intervene, and to intervene if necessary. In reviewing the agency and actions of the agent, the trustee must consider whether a trustee exercising the standard of care (R13) would intervene and must do so if such a trustee would consider it necessary.
(3) Provide that trustees are not liable to a beneficiary for the acts or defaults of an agent, unless the trustee failed to meet the duty of good faith and honesty (R2(1)(c)) and standard of care (R13) in making the appointment, or the trustee failed to review the agency and agent’s actions, or the trustee’s actions to intervene did not comply with the duty of good faith and honesty and standard of care.
(4) Require that the authorisation of an agent is in writing, is given or delivered to the agent and may be subject to conditions.
(5) Allow the trustee to pay the agent a reasonable fee for the agent’s services.
(6) Not include the list of example professionals that may be appointed as agents as was proposed for new section 29(1)(a) of the Trustee Act 1956 in the Trustee Amendment Bill 2007.
(7) Add the following non-exhaustive criteria that a trustee must consider when appointing an agent:
- whether the intended agent has the appropriate skills, expertise and experience to carry out the task; and
- the fees the intended agent will charge and whether employing the agent is a cost-effective option.
(8) Provide that R10 is a default provision capable of being overridden by the terms of the trust. R11 The new Trusts Act should include a power to appoint nominees and custodians of trust property and apply the same framework as will apply to agents under R10(2)−(5) and (8), including:
(a) a power for trustees to appoint a person to act as the trustee’s nominee in relation to some or all of the trust property and to vest that property in the nominee;
(b) a power for trustees to appoint a person to act as custodian in relation to some or all of the trust property whereby that person undertakes the safe custody of the property or of any documents or records relating to the property;
(c) a nominee or custodian must be either:
(i) a person who carries on a business that consists of or includes acting as a nominee or custodian;
(ii) a body corporate that is controlled by the trustee; or
(iii) an incorporated law practice;
(d) the requirement on trustees to keep the arrangement under review (R10(2)), the provision restricting the trustee’s liability (R10(3)), the requirement that the appointment is made in writing (R10(4)) and the power to pay a reasonable fee (R10(5)); and
(e) that the provision is capable of being overridden by the terms of the trust.
Power to appoint an agent
6.19Despite the recommendation that trustees have all of the powers of a natural person in relation to trust property and that this would include power to appoint an agent, we think it necessary to include a provision giving specific power to appoint an agent. These sections empower a trustee to appoint an agent as a default power that is capable of being overridden by the terms of a trust, and clarify that this is not in conflict with the duties of trustees to exercise stewardship and to actively and regularly consider the exercise of trustees’ powers.
Trustee Amendment Bill 2007Top
6.20The Trustee Amendment Bill 2007 contained proposed changes to section 29 of the Trustee Act, which authorised trustees to employ agents to transact trust business or do anything required in executing the trust or administering trust property. The reforms proposed in the Bill were intended to:
- clarify the functions that an agent can be employed to carry out;
- require the trustee to keep the arrangement under review, consider whether to intervene and intervene if necessary; and
- clarify that the trustee would not be liable for the agent’s actions unless the appointment was not made in good faith or with reasonable care, diligence and skill, or the trustee failed to review the agency or the intervention was not in good faith.
6.21We agree with the policy of the proposed reforms included in the 2007 Bill and recommend only minor adjustments to aid clarity and to tie in to the duties of trustees that will be included elsewhere in the new Act. The only significant alteration from the Bill’s approach that we propose is to include a non-exhaustive list of factors for a trustee to take into account in appointing an agent. We consider that this will help trustees to appoint appropriate agents and to better meet their duties under the new Trusts Act. It will provide greater guidance to trustees than the law does currently. Submitters were supportive of the proposal.
6.22The New Zealand Law Society previously raised the concern that the provisions on the payment of fees and charges in the Bill were too prescriptive. The wording of the 2007 Bill could be considered overly complicated. In our view, a simplified provision allowing the trustee to pay the agent a reasonable fee for the agent’s services is sufficient.
Nominees and custodiansTop
6.23 We have included an additional recommendation to give trustees the power to appoint nominees and custodians. These forms of property holding are already in use in New Zealand, particularly for investment purposes, and are covered in the Trustee Act in relation to some specific uses. Nominees and custodians can be seen as a special category of agents, but because they may hold the legal title to the trust property and so need express authority, we consider that it is helpful to spell out this power. The restrictions and safeguards for these powers regarding reviewing the arrangement, liability of trustees, and fees should mirror those used for the power to appoint agents. Additional safeguards that should apply to nominees and custodians should include: that the appointment must be in writing; and that the custodian and nominee must either carry on business of acting as nominee or custodian, be a body corporate controlled by the trustees, or be an incorporated law practice. The second of these is for the purpose of limiting who can carry out these roles to those who are providing professional services and who would engage the financial services regulation if the trust property held consists of financial instruments. These provisions are based on provisions regarding agents, nominees and custodians in the Trustee Act 2000 (UK), which were introduced after a review by the Law Commission for England and Wales.