Summary of recommendations
Chapter 5 – Trustees’ duties
Mandatory and default duties
R2 The new Trusts Act should provide that:
(1) The following are the mandatory duties of a trustee (which will be implied into every trust and cannot be excluded from the trust relationship):
(a) to be familiar with the terms of the trust;
(b) to act in accordance with the terms of the trust;
(c) to act honestly and in good faith;
(d) to act for the benefit of the beneficiaries or to further the purpose of the trust, in accordance with the terms of the trust;
(e) to exercise stewardship over the trust property for the beneficiaries or the purpose of the trust; and
(f) to exercise powers for a proper purpose.
(2)In the exercise of any duty, there is no requirement that beneficiaries are treated equally, as long as they are treated in accordance with the terms of the trust. R3The new Trusts Act should provide that:
(1)The following are the default duties of a trustee (which apply if and to the extent that they are not excluded or modified, explicitly or implicitly, by the terms of the trust or by statute):
(a)not to exercise any power directly or indirectly for the trustee’s own benefit;
(b) to actively and regularly consider the exercise of the trustee’s powers;
(c) not to fetter the future exercise of the trustee’s powers;
(d) to avoid a position of conflict of interest;
(e) to maintain accounts of the trust property that adequately identify the assets, liabilities, income and expenses of the trust and are appropriate to the value and complexity of the trust property;
(f) not to be unfairly partial to some beneficiaries to the detriment of others;
(g) not to make a profit (that has not been permitted by the beneficiaries);
(h) to act without reward except where it has been permitted by the beneficiaries or is in accordance with the trustee’s right to be reimbursed for legitimate expenses and disbursements;
(i) where there is more than one trustee of a trust, to act unanimously;
(j) to manage the trust with reasonable care and skill; and
(k) to invest prudently.
(2)These duties may be excluded or modified, explicitly or implicitly, by the terms of the trust but not to the extent that such alterations are inconsistent with the mandatory duties.
Trustee exemption and indemnity clausesTop
R4(1) The new Trusts Act should provide that:
(a) the terms of a trust must not limit or exclude a trustee’s liability for a breach of trust or grant the trustee an indemnity against the trust property in respect of liability for a breach of trust arising from the trustee’s own dishonesty, wilful misconduct or gross negligence;
(b) a clause that purports to have the effect stated in (a) is invalid (and is effectively severed from the terms of the trust), provided it is found that the settlor’s overall intention was in fact to create a trust as opposed to some other type of relationship;
(c) any paid trust adviser or trust drafter who causes a settlor to include a clause in the terms of the trust that has the effect of limiting or excluding liability for negligence, or of granting an indemnity against the trust property in respect of liability for negligence, must before the creation of the trust take such steps as are reasonable to ensure that the settlor is aware of the meaning and effect of the clause; and
(d) if a person who is paid to advise on the terms of a trust or the drafting of a trust deed fails to meet the obligation in (c) and is a trustee of the trust, the exemption or indemnity clause will have no effect in respect of that trustee.
(2) Professional regulatory bodies relevant to trusts should provide guidance for their members as to what steps would be reasonable to ensure that a settlor is made aware of the meaning and effect of any trustee exemption clauses.
(3) The new Act should re-enact an equivalent of section 73 of the Trustee Act 1956, which gives the court the power to relieve a trustee wholly or in part from personal liability for a breach of trust if the trustee acted honestly and reasonably, and ought fairly to be excused.
Retention of information by trusteesTop
R5 The new Trusts Act should provide that:
(1) In exercising the mandatory duties of a trustee, a current trustee is required, so far as is reasonable, to retain the following:
(a) the trust deed;
(b) any variations made to the trust deed or terms of the trust, including variations made to the beneficiaries of the trust;
(c) a list of all of the assets currently held as trust property and liabilities of the trust;
(d) any records of trustee resolutions made during that trustee’s trusteeship;
(e) any written contracts entered into during that trustee’s trusteeship;
(f) any accounting records and financial statements prepared during that trustee’s trusteeship;
(g) deeds of appointment and retirement of trustees;
(h) any expression of the intention or wishes of the settlor; and
(i)any of the above documents retained by a former trustee during that trustee’s trusteeship and passed on to the current trustee.
(2) Where there is more than one trustee, it is not necessary for every trustee to hold a copy of the documents, except for the documents in R5(1)(a) and (b). One trustee may hold the documents on behalf of the other trustees as long as the documents are available to the other trustees on request.
(3) A trustee is required, so far as is reasonable, to retain the documents for the duration of his or her trusteeship of the trust and, if the trust continues, to pass on the documents to at least one replacement or continuing trustee when he or she retires or is removed.
Provision of information to beneficiariesTop
R6 The new Trusts Act should provide that:
(1) Trustees have a mandatory obligation to provide sufficient information to sufficient beneficiaries to enable the trust to be enforced;
(2) There is a presumption that trustees must:
(a) notify qualifying beneficiaries (those who the settlor intended to have a realistic possibility of receiving trust property under the terms of the trust) as soon as is practicable of the fact that a person is a beneficiary, names and contact details of trustees and the right of beneficiaries to request a copy of the trust deed or trust information; and
(b) provide trust information to a beneficiary who requests it within a reasonable time.
(3) The presumptions in (2) do not apply if a trustee reasonably considers that the information should not be provided after taking into account the following factors:
(a) the nature of the interests held by the beneficiaries, including the degree and extent of a beneficiary’s interests or a beneficiary’s likely prospects of receiving trust property in the future;
(b) whether there are issues of personal or commercial confidentiality;
(c) the expectations and intentions of the settlor at the time of the creation of the trust as to whether beneficiaries would be notified;
(d) the age and other circumstances of the beneficiaries;
(e) the impact on the trustees, other beneficiaries, and third parties;
(f) whether, in the case of a family trust, notification or non-notification may embitter family feelings and the relationship between the trustees and beneficiaries to the detriment of the beneficiaries as a whole;
(g) the practicality of providing information to all beneficiaries or members of a class of beneficiaries in a trust where there are large numbers of beneficiaries or unascertainable beneficiaries;
(h) whether some or all of the documents can be disclosed in full or in redacted form; and
(i) whether safeguards can be imposed on the use of the documents (for example, undertakings or professional inspection).
(4) “Trust information” is defined to include any information regarding the terms of the trust, the administration of the trust, or the trust property that it is reasonably necessary for the beneficiary to have in order for the trust to be enforced, but does not include reasons for trustees’ decisions.
(5) A beneficiary may be charged for the reasonable costs of being provided with the trust information.
(6) Trustees are entitled to apply to the court for an order as to whether they are required to notify a beneficiary or class of beneficiaries under (2)(a), or for an order as to whether they are required to provide a beneficiary with trust information under (2)(b). A beneficiary is entitled to apply to court for an order that the trustees supply trust information. The court is able to review the exercise of the trustees’ discretion and merits of the trustees’ decision.