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.

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.

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.

• 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.