Retirement Life
25 May 2023

Trust issues


More and more I’m hearing disturbing tales around family trusts.  I’m particularly concerned about the number of people I meet who are clearly not managing trusts properly and/or have no professional trustee (such as a lawyer, accountant, or trust company) to keep them on the straight and narrow.


Trusts Act 2019

Meanwhile, with the Trusts Act coming into force, the need for better management has only grown. The Trusts Act does not so much change existing law, instead it clearly sets out trustees’ duties and beneficiaries’ rights (among a few other things). This clarity means that people (beneficiaries and others) are more likely to sue to overturn trusts, which has led to fewer professionals agreeing to act as trustees or charging more for their services.


Some reasons for going at it alone

It seems that a growing number of family trusts in New Zealand do not have a professional trustee. This could be for a range of reasons. Some might not understand the role or importance of having a professional trustee, for a start. Perhaps the associated costs are a deterrent, particularly since trustee fees have risen to reflect the increased risks and volume of work. In some cases, there might’ve been a professional trustee engaged when the trust was formed, but that trustee died, retired, or otherwise moved on and was never replaced.


Many trusts in New Zealand are single asset trusts, often owning the family home and nothing else. It’s fair to say many of these trusts were formed without a very clear purpose, perhaps because at the time ‘everyone was doing it’. In such instances, those involved were probably never very serious about the trust and didn’t bother engaging a professional to help oversee it. However, a professional trustee is a very good idea.


Calculate what you could draw in retirement.

The advantages of engaging a professional are that they:

  • Understand trusts and how to manage them, including making it clear that it’s the trust, not the family, that owns the assets.
  • Ensure proper documentation of processes and decisions, including investments and distributions.
  • Are on top of changes to trust law that occur from time to time. These changes could be legislative but are more often judge-made laws. There are frequent court cases in New Zealand (and elsewhere) that impact trust law and practice, and this is likely to continue.
  • Are generally lawyers, accountants, or trust specialists, with very organised diary systems. This is important because you need to schedule regular meetings, as well as annual reviews.
  • Ensure continuity. If you die or are incapacitated the trustee will make sure the trust continues to operate in line with existing arrangements.


In accordance with the Trusts Act, a professional trustee should ensure that they comply with all the trustee duties outlined in that Act. Of course, it’s not mandatory to have a professional trustee. However, in my experience, it is best practice and more likely to result in a well-managed trust.


The knock-on effect of widening responsibilities for professional trustees

The problem is that some trustees have assessed the risks as being too high and have decided to step back from their trusteeships. They would have advised their clients to find a new trustee, which some may have done. But I suspect quite a lot of others are simply doing without a professional trustee.


Other professional firms may continue to take on trusteeships, but only where they are fully involved, including knowing what’s going on in their clients’ affairs, and are satisfied that their clients take the trust and its management seriously. Again, this has probably left a good number of people without a professional trustee.


Why a casual approach may not work anymore

If a trust is not well managed, it could be attacked and overturned either by beneficiaries or by creditors, the IRD, WINZ, or former partners. A well-functioning trust will have regular trustee meetings, good record keeping, consideration of all beneficiaries, and trustees that act honestly and in good faith for proper purpose. Casual management – treating the trust’s assets as if they were personally owned – or no management at all, could threaten the trust’s very existence and negate any advantages that could have accrued.


Project your retirement income.

As the risk of trusts being attacked by beneficiaries and others increases, at the same time as the benefits of having one decrease, many are choosing to wind up their trusts. If the benefits of a trust mean it is worth keeping, make sure that you manage it well. In most cases, this will mean engaging a professional trustee. The cost of this is simply the price for maintaining a well-functioning, safe trust arrangement that achieves its intentions.


Photo of Martin Hawes
Written by:

Martin Hawes

Martin Hawes is not a Financial Adviser or a Financial Advice Provider, and the views in this article are not intended to be financial advice. The views and opinions are general in nature, and may not be relevant to an individual’s circumstances. Before making any investment, insurance or other financial decisions, you should consult a professional financial adviser. Martin Hawes is a director and shareholder in Lifetime Income.

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