Changes to trust law mean it’s timely to consider whether you still need an independent trustee for your trust.
Trusts can be an excellent tool for protecting your assets and ensuring they pass on to the right people. However, it’s important to set them up and administer them correctly to ensure you achieve what you set out to achieve. Since the Trusts Act 2019 came into force in January 2021, administration obligations for trusts have changed. More comprehensive record keeping and more sharing of information is required. If you’re paying a professional trustee to do that for you, unfortunately, that also means more cost.
If you’re questioning whether the cost of managing your trust is worth the benefits it is delivering, the first question to consider is whether you still need a trust at all. As your situation changes over the course of your life, your trust may have served its purpose, and no longer be required. If you’ve been through a review process and decided the trust is still necessary, the next question may be whether you still need to retain an independent trustee?
In New Zealand it’s very common for people to be both a beneficiary and a trustee of a trust. An ‘independent trustee’ is a trustee who is not also a beneficiary, so they can provide an objective perspective in trustee decision-making. Independent trustees are usually appointed to demonstrate impartiality and to ensure proper record keeping is completed, which is particularly important under current Trust law. There is no requirement under the Trusts Act to have an independent trustee, but some trust deeds do require one.
An independent trustee is often a ‘professional trustee’ such as your lawyer or your accountant. However, a trustee doesn’t have to be a ‘professional’ to be independent – they just have to be a person who is not a beneficiary of the trust. If you’re looking to reduce administration costs for your trust, one option is to replace your professional trustee with a trusted friend or relative (who is not a beneficiary of the trust). However they should be aware of the role that they are taking on, as there are risks involved in being a trustee.
It’s also important to note a trust can still function properly without an independent trustee. The law says that trustees must act in the interests of the beneficiaries. A trust without an independent trustee can achieve this outcome on its own, provided the trustees run the trust properly. That will include taking steps to demonstrate the legitimacy of the trust and comply with the trustees’ duties. For instance, they will need to discuss the interests of all beneficiaries before making decisions, make sure they minute those decisions and that they share information with beneficiaries as required by law.
If the trustees find themselves facing a tricky situation or want advice on a particular issue, trusts with no professional trustees are still able to call on their legal advisors or accountants for additional advice, just as they would any other time.
If you’d like to discuss whether your family trust is set up in the best way for your current situation, WRMK’s experienced trust lawyers will be happy to help.
Our thanks to Natalie Robinson for writing this article.