Trustee Duties – at a glance

Trust Deed

Trustee Duties – at a glance

A large number of our clients are also trustees of discretionary trusts and so we thought it would be useful to post a refresher on trustee duties. The discussion is not intended to be exhaustive but we hope provides a good overview.

Managing the Trust’s Affairs Efficiently

Trustees have a duty amongst other things with managing a trust fund and its assets in a efficient and economic manner. At the very least, a trustee should:

  • understand the trust deed thoroughly and comply with the terms of the deed. It is not uncommon to find trustees who have not read the trust deed and are not familiar with their responsibilities to the beneficiaries of the trust.
  • make enquiries about the conduct of any retiring trustees before agreeing to act as a trustee.
  • ensure that their name is applied as a trustee to any titles associated with the trust’s assets. For instance, if the trust owns shares in a company, the details should be updated with the Companies Office.
  • most importantly, do nothing that a prudent person would not reasonably do in managing their personal affairs.

Acting in the Best Interests of the Beneficiaries

At the most basic, trustees are required to:

  • act in the best interests of the current and any future beneficiaries. There is no duty to act in the interests of the settlor (the person who set up the trust).
  • act impartially which will probably mean understanding the personal circumstances of the beneficiaries.
  • avoid a conflict of interest situation where the trustee’s duties conflict with their own personal interests.
  • not profit from any activity of the trust, except where the trustee is also a beneficiary.

It probably goes without saying but trustees must also obey the rules of the trust as set out in the trust deed.

Keeping Proper Records

Trustees are required to keep proper accounting records. These can be requested by the beneficiaries at any time.

It is quite common for the family home to be owned by a trust and occupied by both trustees and beneficiaries. In some cases, the home is the only asset and so financial records will be relatively simple.

However, where a trust is more active, particularly if the trust owns shares in a company or companies, owns multiple properties or has a number of active investments, financial records are essential. Tax returns will also need to be prepared.

Best Practice

It is not possible to avoid complete liability for any actions as a Trustee. As such, there are some things we which strongly recommend you do as a Trustee:

  • Read the trust deed and understand your obligations.
  • Make sure that the trust can carry out any obligations with the resources at its disposal. Understand what assets and liabilities the trust has.
  • Make sure the trust has a separate bank account for all income and expenditure.
  • Maximise the income earning capability of the Trust’s investments.
  • Get appropriate advice on legal and tax issues from professionals.
  • Meet with your fellow trustees regularly – at least annually – and keep minutes of all trust meetings.
  • Don’t be a passive trustee – get actively involved in all decisions. Critically review any recommendations from other trustees.
  • Make decisions unanimously. Some trust deeds allow for majority decisions but where possible there should be unanimity.
  • Look after the trust’s assets, maintaining any property and ensuring any assets are insured.
  • Make sure that any gifting is done annually.

How can Generate Accounting help?

We are able to prepare financial statements and tax returns for the trust and provide tax advice to the Trustees.

The duties outlined above are not exhaustive and are general in their nature. Responsibilities will differ depending on the duties outlined in the trust deed. We recommend consulting a solicitor for specific advice relating to your own affairs.We work closely with a small number of solicitors so if you would like a referral, please do not hesitate to get in touch.

Trustee duties are not onerous and some might say they are common sense. Your duties as a trustee should not take up a lot of time and with the appropriate care, it can be a very rewarding role.

I have no use for bodyguards, but I have a very specific use for two highly trained accountants.

Generate Accounting
Level 2, 22 Dundonald St, Eden Terrace, Auckland, New Zealand 1021.