The Trusts Act 2019 outlines two types of trustee duties: compulsory and default. It’s essential for trustees and beneficiaries to understand these responsibilities to ensure the trust functions as intended and complies with the law.
COMPULSORY DUTIES
The mandatory duties, which cannot be changed or excluded, are foundational to trust management. They ensure that trustees:
- Know and adhere to the terms of the trust.
- Act honestly and in good faith, keeping the beneficiaries’ interests central.
- Exercise powers for a proper purpose and for the benefit of the beneficiaries.
These obligations are designed to protect beneficiaries and uphold the core purpose of the trust.
DEFAULT DUTIES
In contrast, default duties are flexible and may be modified or excluded if the trust deed permits. Default duties require a trustee to:
- exercise the care and skill that is reasonable taking into account any special knowledge
- or experience they have when investing, exercise the care and skill that a prudent person of business would exercise in managing the affairs of others, again taking into account any special knowledge or experience they have
- not exercise a power for their own benefit
- not fetter (bind or commit) trustees to a future exercise of a discretion they have under the trust
- avoid a conflict between the interests of the trustee and the interests of the beneficiaries
- act unanimously with all other trustees
- act without favour in relation to the beneficiaries
- consider regularly whether they should be exercising one or more of their powers as a trustee
- not make a profit nor take a reward from their role as a trustee
While these duties can be modified, doing so may require a variation in the trust terms, which must be explicitly allowed by the trust deed. If the trust deed does not permit modification, altering these default duties may not be possible.
CONCLUSION
Trustees of existing trusts should review their trust deed to ensure it aligns with the Trusts Act requirements. If modifications are needed, legal advice is recommended to determine whether a deed variation is feasible. Contact us for any assistance you may need in managing or setting up a trust under the current law.
