Contents

Chapter 6
Trustees’ powers

Power to delegate

RECOMMENDATION

R12 The new Trusts Act should, as a default position, allow a trustee, by power of attorney, to delegate the execution of all or any of the trustee’s powers, duties and discretions (that the trustee either holds as a sole trustee or jointly with another person). The provision should:
(1) Add temporary mental incapacity to absence from New Zealand and temporary physical incapability as the circumstances in which the power of delegation can be exercised.
(2) State that the delegation:
(a) commences as provided by the instrument creating the power or, if the instrument does not provide for the commencement of the delegation, on the date of the execution of the instrument by the trustee; and  
(b) continues for 12 months or any shorter period provided by the instrument, with one extension by the delegating trustee of up to an additional 12 months.
(3) Require a trustee delegating the powers (or the delegate, where the trustee is incapable of doing so) to, within seven days of the instrument of delegation taking effect, notify any co-trustees and any person with a power to appoint and remove trustees of:
(a) the date on which the delegation comes into effect;  
(b) the duration of the delegation;  
(c) the identity of the delegate;  
(d) the reason for the delegation; and  
(e) which powers, duties and discretions are delegated, where only some are delegated.
(4) Require sole trustees who are delegating to notify any person with the power to appoint and remove beneficiaries, or if none, all competent adult beneficiaries, or where that is unreasonable or impractical in the circumstances, a reasonably representative sample of beneficiaries.
(5) Require notification, as specified in (3), each time an instrument of delegation takes effect.
(6) The failure to notify would be considered a breach of trust, but would not, in favour of a person dealing with the delegate, invalidate any act done or instrument executed by the delegate.
(7) Retain the current position that trustees are only liable to beneficiaries for the actions or default of a delegate if the trustees did not exercise the duty of good faith and honesty (R2(1)(c)) and the standard of care (R13) in the appointment of the delegate.
(8) Clarify that the default position is that a delegate may exercise the power to resign on behalf of a trustee who has delegated the trustee’s powers.
(9) Retain the current position of allowing delegation to a sole co-trustee only if that co-trustee is a statutory trustee corporation.
(10) Allow for a co-trustee or a beneficiary to apply to the Public Trust for the Public Trust to consent to become the delegate for a trustee who is unable or unavailable to make a decision, and cannot be contacted for any reason, and there is no delegation in place.

Delegation under the Trustee Act

6.24 A delegation under section 31 of the Trustee Act enables the substitution of a trustee by another person who can take over their duties, powers and discretions where the trustee is leaving or is about to leave New Zealand, or expects to be absent from New Zealand from time to time, or is or may become temporarily incapable of performing his or her duties on account of physical infirmity. Unlike an agent under section 29, who can only fulfil certain powers of the trustee, a delegate can take the trustee’s place in exercising all of the trustee’s duties, powers and discretions.

Reforms to power to delegateTop

6.25We proposed in the Preferred Approach Paper to expand the circumstances in which a delegation can apply to include temporary mental incapacity, to limit the duration of a delegation to 12 months with the possibility of a further 12 month extension, to introduce a notification requirement and to allow the Public Trust to become a delegate for a trustee who is unavailable to make a decision.194 These reforms expand the circumstances when the default power to delegate may be useful, while limiting delegation to temporary situations where it is appropriate. The reforms provide protection for beneficiaries by ensuring that others know about the delegation.
6.26We favoured retaining the current position with regard to a trustee’s liability to the beneficiaries for the delegate’s actions and defaults. It is fair to the trustee to limit liability to when they have not exercised good faith and reasonable care in the exercise of a delegation as the trustee cannot easily do more than this when they are in the circumstances that allow a delegation. We are unaware of any problems with this approach to the trustee’s liability currently. We also proposed a continuation of the current position with regard to delegation to sole co-trustees when they are statutory trustee corporations and delegation by sole trustees because they are both the most practical options.195

Changes from Preferred Approach proposalsTop

6.27The proposals in the Preferred Approach Paper were generally well received by submitters. However, there was considerable comment from submitters regarding the details of the proposals, which have now been given further consideration.

6.28The comment was made that having a default delegation provision is incongruous with a default duty of trustees to act personally, as had been expressed in the Preferred Approach Paper. We have adjusted the wording of the default duty recommendation by stating that the default duties can be altered by statute to address this (R2(1)). There was also concern that beneficiaries could be left in a position of having no redress. However, delegates cannot exclude liabilities to any greater extent than trustees and would have the same responsibility and liability as trustees.

6.29Some submitters were concerned about the effect of the proposals with regard to duration and notification where an instrument of delegation is executed but would only take effect when the circumstances in which delegation is allowed exist. We understand that this is a fairly common way of setting up delegations. It is a sensible way for trustees to protect against unforeseen circumstances that prevent them from carrying out their role. We would not want new legislation to prevent or inhibit this where the instrument of delegation is executed more than 12 months in advance of delegation or because notification did not occur when the instrument was executed. The new legislation should take account of this type of delegation instrument. Our recommendation uses wording similar to that in section 25 of the Trustee Act 1925 (UK). This means that the rules regarding duration and notification take effect only once a delegation takes effect and each time that instrument takes effect.

6.30Several submitters have questioned the current position with regard to whether a trustee may delegate to their only co-trustee. At present such a delegation may only occur where the co-trustee is a statutory trustee corporation. It has been suggested that it should be possible to delegate to a sole co-trustee if that trustee is any corporation. We are not recommending a change to this position at present, but this may be something that will be reconsidered by the Commission in the corporate trustee review.

6.31Submitters favoured the introduction of a notification requirement when the power to delegate is exercised. However, some have suggested that the settlor has a right to be notified. We do not think that it is necessary for a trustee to notify the settlor of a delegation because the purpose of the delegation is to ensure that the trust can continue to be enforced, a role that is carried out by the beneficiaries rather than the settlor. Other submitters questioned the way of determining which beneficiaries should be notified when a sole trustee delegates if there are no persons with the power to appoint and remove trustees. We proposed that competent adult beneficiaries or a reasonably representative sample of beneficiaries should be notified. It was suggested that the former may no longer have an ongoing role with the trust and that the latter was too vague a category to be useful. The purpose of the proposed requirement was to ensure that at least somebody knows when a sole trustee’s role has been delegated to another. We do think there is a legitimate concern that the notification requirement could be overly onerous, so we have added the proviso that only what is reasonable in the circumstances is required. It was pointed out that there may be a problem when a trustee is incapacitated and unable to carry out the notification requirement. To address this situation we now recommend that the delegate be required to do the notification.

6.32Some submitters questioned whether the Public Trust should have the role of being the delegate when a trustee is unable or unavailable to make a decision. However, we are comfortable that the Public Trust is an appropriate body to have this role. This type of role is clearly akin to the types of statutory roles that the Public Trust already has under other legislation. We discuss the roles of the Public Trust more generally in chapter 15.

194Preferred Approach Paper, above n 185, at P16.
195At P16.