Summary of recommendations
Chapter 6 – Trustees’ powers
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.
(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 maintenance and advancementTop
R8 The new Trusts Act should:
(1) Re-enact section 40 of the Trustee Act 1956 in modernised form with the following reforms:
(a) defining the phrase “maintenance, education, advancement or benefit” in the legislation in a way that ensures they are interpreted broadly and include the concepts of “comfort” and “wellbeing”;
(b) removing the current test for the exercise of power in section 40(1)(a): “as may, in all the circumstances, be reasonable”; and
(c) removing the requirement in section 40(1)(a)(i) to take into account other trust funds to which a beneficiary may have access.
(2) Re-enact section 41 of the Trustee Act 1956 in modernised form with the following reforms:
(a) defining the phrase “maintenance, education, advancement or benefit” as in (1)(a) above;
(b) removing the limits on the amount of the advancement; and
(c)clarifying that those who hold contingent interests under a double or multiple contingency are not eligible.
(3) Provide that this is a default provision capable of being overridden by the terms of the trust.
Age of majorityTop
R9 The new Trusts Act should:
(1) Set the age of majority for the purposes of the Trusts Act and trust law generally (including wills) at 18 years.
(2) Clarify that the Age of Majority Act 1970 does not apply.
Appointment of agents, custodians and nomineesTop
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.
R11The 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 delegatesTop
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.
Standard of careTop
R13 The new Trusts Act should:
(1) Provide that, when exercising a power of administration, including a power to:
- hold trust property;
- maintain and develop trust property;
- deal with trust property;
- transfer trust property to any person;
- insure trust property;
- carry on a business;
- appoint an agent, nominee or custodian;
- appoint a delegate; and
- any other power affecting the administration of trust property,
a trustee must exercise such care and skill as is reasonable in the circumstances, having regard in particular –
(a) to any special knowledge or experience that the trustee has or holds himself or herself 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 kind of business or profession.
(2) The standard of care does not apply to the exercise of a discretion to distribute trust property.
(3) The standard of care does not apply if or in so far as it appears from the terms of the trust that the duty is not meant to apply.