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Part 1 - Mandatory and default duties of trustees and trustee liability
The introduction of the Trusts Act 2019 (the Act) earlier this year has substantially changed the law relating to trusts. The objective of the Act is to make trust law more accessible and understandable by codifying trustees’ responsibilities and accountability to beneficiaries. There are, however, some significant changes that trustees need to be aware of.
First, prior to the commencement of the Act, any clause in a trust deed limiting, excluding or indemnifying a trustee for liability for breach of trust would be ineffective to the extent it was caused by dishonesty or wilful misconduct. It was normal for trust deeds to reflect this legal position by referring to these causes of breach. It is now the case under the Act that such a clause will also be ineffective to the extent a breach is caused by gross negligence. We recommend that trust deeds be updated by a deed of variation to reflect this change so that the position is clear to all trustees.
Secondly, the Act sets out “mandatory duties” for trustees that cannot be excluded or modified by the terms of the trust deed. If you are a trustee, you should familiarise yourself with these duties to ensure you are acting in accordance with the requirements and are not in breach of the Act. There are also a number of “default duties” for trustees that will apply unless they have been specifically modified or excluded by the trust deed. The mandatory and default duties reflect what is already expected of trustees, but now that they are specifically provided for in the Act, it is especially important trustees are aware of them. The duties are summarised at the bottom of this page.
If you are a trustee or a settlor of a trust, and you have not had your trust deed reviewed to identify if any default duties are currently modified or excluded by the trust deed, please get in touch with us. We are able to provide a full review with our recommendations for any default duties that we consider should be modified or excluded by way of a variation.
Part 2 of our series on the Trusts Act 2019 will discuss disclosure obligations to beneficiaries.
Mandatory duties of trustees under the Act
Section 23 - Duty to know terms of trust
A trustee must know the terms of the trust.
Section 24 - Duty to act in accordance with terms of trust
A trustee must act in accordance with the terms of the trust.
Section 25 - Duty to act honestly and in good faith
A trustee must act honestly and in good faith.
Section 26 - Duty to act for benefit of beneficiaries or to further permitted purpose of trust
A trustee must hold or deal with trust property and otherwise act:
Section 27 - Duty to exercise powers for proper purpose
A trustee must exercise the trustee’s powers for a proper purpose.
Default duties of trustees under the Act
Section 29 - General duty of care
When administering a trust (other than when exercising a discretion to distribute trust property), a trustee must exercise the care and skill that is reasonable in the circumstances, having regard, in particular:
Section 30 - Duty to invest prudently
When exercising any power to invest trust property, a trustee must exercise the care and skill that a prudent person of business would exercise in managing the affairs of others, having regard, in particular:
Section 31 - Duty not to exercise power for own benefit
A trustee must not exercise a power of a trustee directly or indirectly for the trustee’s own benefit.
Section 32 - Duty to consider exercise of power
A trustee must consider actively and regularly whether the trustee should be exercising one or more of the trustee’s powers.
Section 33 - Duty not to bind or commit trustees to future exercise of discretion
A trustee must not bind or commit trustees to a future exercise or non-exercise of a discretion.
Section 34 - Duty to avoid a conflict of interest
A trustee must avoid a conflict between the interests of the trustee and the interests of the beneficiaries.
Section 35 - Duty of impartiality
This section does not require a trustee to treat all beneficiaries equally (but all beneficiaries must be treated in accordance with the terms of the trust).
Section 36 - Duty not to profit
A trustee must not make a profit from the trusteeship of a trust.
Section 37 - Duty to act for no reward
A trustee must not take any reward for acting as a trustee, but this does not affect the right of a trustee to be reimbursed for the trustee’s legitimate expenses and disbursements in acting as a trustee (see section 81(2)).
Section 38 - Duty to act unanimously
If there is more than one trustee, the trustees must act unanimously.
© 2017 K3 - Consulting, Accounting & Legal
+64 09 366 1366
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+64 09 366 1366
83 Albert Street
© 2018 K3 - Consulting, Accounting & Legal