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28 May 2015
In October last year we prepared two detailed articles for this newspaper on Trusts and Trustee's responsibilities.
We believe that it is very important that Trustees fully appreciate their responsibilities regarding the trust.
In September 2013, the Law Commission submitted a paper to the Government containing 51 wide ranging recommendations to modernise and clarify trust law. This was the first stage of a wider review which looked at private trusts. The second stage will look at charitable trusts and the third will review corporate trustees.
Although the recommendations have not yet been implemented to replace the outdated Trustee Act 1956, trustees should be reviewing their performance now.
There are approximately 500,000 trusts in New Zealand, and its estimated that as many as 75% of them may be mismanaged. Don't let your trust be one of them.
The main points to remember are:
The golden rule is that a trustee must take all precautions which an ordinary prudent business person would take in managing similar affairs of his own. There is no room for passive trustees.
It is important to remember that, a person may be the Settlor, a Trustee and a Beneficiary of a Trust, but if so, he must wear a "different hat" for each role.
As you can see being a trustee is a serious commitment. There is the risk of personal liability if a trustee does not undertake his or her duties in a proper manner. Are you at risk?
You should not accept a trustee position unless you understand your responsibilities and duties, and are prepared to be actively involved in the management and administration of the trust. If the settlor or other trustees do not agree to operate the Trust according to the rules, don't get involved. If you already are, resign.
Insist that a regular review of the Trust is undertaken to ensure that all matters are being handled correctly. It is a good time to check that the Settlor's Memorandum of Wishes is up to date, all Trustees understand the Trust deed, the Trust's assets and investments are appropriate, there is current knowledge of beneficiaries' identities and circumstances and that all decisions have been minuted and proper accounting records maintained.
Following this approach will reduce exposure. For further clarification contact your accountant or legal adviser.
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