Should I agree to be a trustee?

Hawkes Bay Lawyer

Should I agree to be a trustee?

What you need to know before signing the dotted line

Firstly, what is a trustee?

A trustee is someone who controls property within a trust fund and distributes it to the beneficiaries according to the trust deed. Often, this happens after the settlor (creator of the trust fund) has passed, but in wealthier trusts, distributions may occur during their lifetime. 

Many people in New Zealand act as trustees for trusts ranging in nature from family, to charitable, to investment, or other. Being a trustee involves work and comes with a set of responsibilities. Before you sign a deed agreeing to be a trustee, you need to understand what you’re getting into. What is the trust for? What will your legal responsibilities be?

What does a trustee do?

A trustee’s responsibilities change on a case-by-case basis. A trust is an ongoing set of relationships between the settlor, the trustees, and the beneficiaries. As a trustee, you will be accountable to the beneficiaries of the trust for the decisions you make in regard to the trust property.  You will have serious duties to perform.

Your research into the trust should begin with reading the trust deed thoroughly. This will tell you what the purpose of the trust is, who the original trustees are, and who the beneficiaries are of the trust.

Who are the other trustees?

For a typical simple family trust, the trustees might simply be relatives of the settlor. However, some trusts will have a professional trustee such as an accountant, solicitor, or trustee company. It would be wise to find out what role each trustee plays in the administration and steering of the trust. You can check if the current trustees were validly appointed by reviewing the trust’s legal records.

Who are the beneficiaries?

Beneficiaries are named in the trust deed or are part of a named class in the trust deed e.g “the children and grandchildren of the settlor.” In either case, it is the trustees’ responsibility to know who all the beneficiaries are. From 30 January 2021, all trustees must report certain key information about the trust to the beneficiaries.

What are the trust assets and liabilities?

Trusts commonly own land. Land should be held in the names of the current trustees. They also typically have bank accounts, which can be in the name of the Trust itself. Wealthier trusts may have investment portfolios, too.

Trusts can also operate businesses and enter legal agreements involving assets and/or liabilities e.g. loans and leases. Each type of asset and liability will have a unique combination of responsibilities for the trustees to manage.

How does the trust operate?

Once you know what assets are held by the trust, and what the trust deed declares they should be used for, you should look to see how the trust is administered in practice. Do this by seeking out annual reports, meeting minutes, and trustee resolutions that the Trust has. Discuss the typical practices of the trust with the other trustees.

Compliance

All trustees must meet the standards required by the Trustee Act 1956. From 30 January 2021, the more stringent standard of the Trusts Act 2019 will apply. This Act increases the responsibility of trustees to keep the trust’s beneficiaries informed. 

If the trust is a landlord or carries on business, you may have to consider the additional legal obligations which affect the trust. For instance, if the trust owns and leases a residential investment property, the trustees have responsibilities under the Residential Tenancies Act.

Important questions to ask include: does the Trust have a solicitor and an accountant?  What advice and/or guidance have the current trustees sought from advisors on any particular issues? Do the current trustees have the appropriate expertise and experience to handle the usual activities of the trust? At Carlile Dowling, we can help you answer these questions. Although many trusts operate in a straightforward way, the decision to become a trustee should be considered carefully, because trustees have onerous obligations. Carlile Dowling’s expert solicitors can help you review a trust deed and other trust records to advise you on the implications of accepting trusteeship. Get in touch today at 06 835 7394 or mailbox@cardow.co.nz

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