How to manage a Family Trust

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Many have accepted the role of being a Trustee of a Family Trust for a friend or family without knowing what is actually involved in the trusteeship. Being a Trustee does not merely involve signing a few documents so that a friend or family member is able to buy a house. There is far more to it than that. A Trustee is a person or an entity that holds property on behalf of the Beneficiaries of the Trust. Trustees are required to act in the best interests of the Beneficiaries of the Trust. Therefore they have a fiduciary duty to the Beneficiaries of a Family Trust (i.e. Trustees are accountable to the Beneficiaries). There are serious consequences for a Trustee who breaches his or her duties, which is why a Trustee needs to be familiar with his or her obligations. In general, Trustees are bound to act loyally, honestly, responsibly, reasonably and in good faith. The responsibilities of Trustees can be categorised as follows:

1. Duty of Efficient Management
Trustees are bound to act in a manner that will ensure that the assets (and liabilities) of the Trust are administered and managed efficiently. This includes the Trustee’s responsibility to invest trust funds in a prudent manner, keep up to date with trust issues, check bank statements and keep management and other costs within a reasonable level. If a Trustee is wilfully negligent or dishonest in the management of the Trust, he or she may be personally liable for their actions.

Naturally, as part of the efficient management of the Trust, it is crucial for the Trustees to be familiar with the terms of the Trust Deed. Trustees must have an up-to-date knowledge of the Trust’s assets and liabilities including the financial position of such assets and liabilities. When it comes to the Beneficiaries, Trustees must not only be able to identify all the beneficiaries of the Trust (including any discretionary beneficiaries) but also have a knowledge of the beneficiaries’ background, circumstances, needs, abilities and disabilities.

In terms of record keeping, we strongly recommend that Trustees have a folder to keep the Trust Deed, Memorandum of Wishes, Gifting documents and Title records for any real property owned by the Trust. The folder should also include: i. A list of the Trust’s property which includes details of the property (eg. description of the property, location of the property, price of the property, (if any) and any insurance details in relation to the property); ii. A list of Trust debts and liabilities including details of each (eg. the amount owing and the securities for the loans); iii. A list of Beneficiaries including their details (eg. name, address, telephone number, age, IRD number and other relevant information); iv. A list of the Trustees including their details (eg. name, address, telephone number, IRD number and other relevant information);v. All resolutions passed by Trustees; vi. All minutes of any Trustees’ meeting; vii. General Correspondence; viii. Copies of Independent Legal Advice; ix. Accounting records (eg. financial statement, bank account statements and Tax records); and x. A diary of some sort to record important dates such as tax payment dates, the date of the next Trustee meeting and when gifting is due.

It is extremely important for Trustees to keep good minutes of all meetings and record all decisions made about Trust affairs. (These written decisions relating to Trust assets are known as resolutions and they must be signed by the Trustees.) This is not only an integral part of good management of Trust affairs, but also an important method to keep track of major decisions by the Trustees.

2. Duty to Keep Accounts and Render Them to Beneficiaries
As Trustees have a fiduciary duty to Beneficiaries, they must be able to make relevant information available to the Beneficiaries at any time. Information that can be disclosed to Beneficiaries of a Trust includes: i. Trust Deed; ii. Documents such as loan documents; iii. Financial Statements; and iv. Investment Strategies.

It is worthy of note that Trustees do not have to divulge their reasons in relation to the exercising of their powers and discretions. This exclusion assists the Trustees in their role of impartiality especially in situations involving Discretionary Beneficiaries.

3. Duty to Act Personally 
Every Trustee needs to be personally involved in the decision-making process on behalf of the Trust. Trustees must evaluate and assess each decision for themselves without undue influence. This is particularly vital for Independent Trustees, as many Independent Trustees tend to follow the decisions made by other Trustees without giving the issue much thought.

4. Duty of Loyalty
As Trustees are to act in the best interests of the Beneficiaries, they should avoid situations where their own personal interest may conflict with their duties to the Trust. Trustees are not to profit from their position unless they have been authorised to do so. Should Trustees find themselves in a position whereby they would benefit from the actions of the Trust, that fact must be disclosed to the other Trustees.

In summation, Trustees must efficiently manage all Trust affairs and they are to always act in the best interest of the Beneficiaries. Good record keeping will assist the Trustees in fulfilling their duties and obligations under the terms of the Trust. If you think we can help in any way, we’d love to hear from you.

Les Allen
Les Allen

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