The Trustee's Handbook: Understanding Your Duties and Responsibilities in NZ

• Under New Zealand's Trusts Act 2019, trustee duties are divided into two categories: five mandatory duties that cannot be changed and ten default duties that can be modified by the trust deed.
• The five mandatory duties include knowing the trust's terms, acting honestly and in good faith, and always acting for the benefit of the beneficiaries.
• A common challenge arises in 'mum and dad' family trusts, where the default duty not to self-benefit can conflict with the practical reality of trustees living in a trust-owned property.
• Comprehensive asset protection involves more than just managing a trust; it also includes having a valid will and Enduring Powers of Attorney (EoPAs) in place.
• Seeking expert legal advice is crucial for navigating your obligations and ensuring you manage the trust correctly, avoiding potential disputes or liability.

Becoming a trustee for a family trust is a significant role. It’s an act of faith, a position of great responsibility, and something many of us in New Zealand will be asked to do at some point. But what does it actually involve? It’s a question we hear all the time from our clients.

Often, people accept the role without fully understanding the weight of the legal obligations that come with it. The introduction of the Trusts Act 2019 changed the game, clarifying the rules and making it more important than ever for trustees to know exactly what’s expected of them. We're here to break it down for you, drawing on our experience helping people across Hawke's Bay and New Zealand manage their trusts with confidence.

_Disclaimer: This article provides general information and does not constitute specific legal advice. As every trust and personal situation is unique, we recommend seeking professional guidance tailored to your circumstances.

The first thing every trustee needs to understand is that the Trusts Act 2019 organises your responsibilities into two distinct groups. It codifies trustee duties into mandatory and default categories. Think of it this way: mandatory duties are the absolute, unchangeable foundation of your role. Default duties are the standard rules that apply unless the trust deed—the document that created the trust—specifically changes or removes them.

Understanding this distinction is the key to managing a trust correctly.

The Five Mandatory Duties: Your Non-Negotiable Obligations

These are the five duties you must always follow, no matter what the trust deed says. In our experience, these are the bedrock of good trust management and are designed to protect the beneficiaries.

The mandatory duties are foundational and ensure that trustees always keep the beneficiaries' interests at the centre of every decision. They are the core requirements that cannot be changed or excluded. Let's look at what they are:

1. Know the terms of the trust: You must have a copy of the trust deed and understand its rules. You can’t follow the rules if you don’t know what they are.
2. Act in accordance with the terms of the trust: All your actions must align with what the trust deed permits and requires.
3. Act honestly and in good faith: This sounds obvious, but it’s a legal requirement. Every decision must be made with genuine and honest intentions.
4. Act for the benefit of beneficiaries: Your primary function is to manage the trust’s assets for the people it was set up to support—the beneficiaries.
5. Exercise your powers for a proper purpose: You must use the powers granted to you as a trustee only for the purposes outlined in the trust deed, not for any other reason.

The Ten Default Duties: The Rules That Can Be Modified

Beyond the mandatory five, there are ten default duties. These are the standard operating procedures for a trust unless the person who set up the trust (the settlor) decided to tailor the rules differently in the trust deed. It's vital to check the deed to see if any of these have been altered.

Some of the most important default duties include:

• The duty to invest prudently: You must manage the trust's property and investments with the care and skill a prudent business person would exercise.
• The duty not to exercise power for your own benefit: You generally cannot make decisions that benefit you personally.
• The duty to avoid conflicts of interest: You must not put yourself in a position where your personal interests conflict with your duties to the beneficiaries.
• The duty to act impartially: You must treat all beneficiaries fairly and not favour one over another, unless the trust deed allows for it.
• The duty to act unanimously: If there is more than one trustee, you must all agree on decisions. As the Kempsweir article notes, one of the default duties is to "act unanimously with any other trustees."

Here’s where theory meets reality. A common mistake we observe is with typical New Zealand family trusts, where the family home is owned by the trust, and the trustees (often the parents) live in it. This creates a tricky situation.

As one legal analysis points out, the default duty not to exercise powers for self-benefit contradicts how most ‘mum and dad’ trusts actually function. By living in the home, the trustees are technically benefiting from a trust asset every single day. This is a perfect example of why getting expert advice is so important. The trust deed needs to be properly structured to allow for this common arrangement without putting the trustees in breach of their duties.

Without the right clauses, trustees could face a dispute from a beneficiary down the line. It’s a potential headache that can be avoided with careful planning and the right legal structure from the outset.

Being a trustee is often just one piece of a much larger puzzle: your overall asset planning and estate management. A trust works best when it's part of a coordinated strategy that includes other essential legal documents.

Your will is the most obvious one. A will dictates what happens to your personal assets, while a trust manages the assets held within the trust. The two must work together. If you don't have a will, or it's out of date, it can create serious problems for your family.

Another critical tool is an Enduring Power of Attorney, or EPA. An EPA allows you to appoint someone you trust to make decisions about your property and personal care if you become unable to do so yourself. It’s about planning for the unexpected.

Reading through these duties can feel daunting. That’s completely normal. The law around trusts and estates is detailed, and the stakes are high. But you don't have to figure it all out by yourself. The role of a good trust lawyer is to provide clear, practical advice that empowers you to act confidently and correctly.

Whether you're setting up a new family trust, reviewing an old one, or need guidance on your duties as a trustee, getting expert advice is the best form of asset protection. Costs can vary depending on the complexity of your matter, but the investment in professional guidance can prevent costly disputes and liability in the future.

If you're in Hawke's Bay or anywhere in New Zealand, our team is here to help. Our team can help you make sure your affairs are in order. We can assist with your family trust, and helping with your will and EPA. Let us help you manage your responsibilities, so you can focus on what matters most—protecting the future for your beneficiaries.