It is relatively common for Trustees of charitable trusts to delegate some functions and responsibilities to other people. However, it is important to understand what delegations are legally permitted and what is not able to be delegated, and the implications.
While Trustees can appoint others to assist with the operations of a charitable trust, we urge Trustees to keep in mind that they themselves are ultimately responsible for all decisions, even if they have delegated a task or function to another person.
This article is part of a series on “demystifying the role of Trustees of charitable trusts”, where we answer some of the questions we often hear from Trustees. In our other articles we explore Trustee Powers, Trustee Duties and Trustee Liabilities.
What can be delegated?
A charitable trust’s Trust Deed (also known as ‘rules’ or a ‘constitution’) will generally permit Trustees to delegate some powers, authorities and discretions exercisable by the Board to a Trustee, an officer or employee or any attorney, agent or other person nominated by the Board, subject to the restrictions under the Trusts Act. For example, a Trustee may not appoint a person to exercise or perform on their behalf these particular functions, among others:
- a function that is, or is related to, the determination of whether, when, or in what way any trust property should be distributed, used, possessed, or otherwise beneficially enjoyed, including a power of appointment;
- a power to appoint a person to be, or to remove, a Trustee of the trust; or
- a power to resettle the trust, or to amend, revoke, or replace all or any terms of the trust.
Delegation when absent from New Zealand
Another useful option to be aware of is that a Trustee may also delegate all or any of their powers and functions under the trust where the delegation is necessary because a Trustee is absent from New Zealand, unable to be contacted temporarily, physically incapacitated temporarily or lacking the capacity to perform as a Trustee temporarily. Note the use of the word ‘temporarily’ which indicates this is not intended to be a long-standing or frequently used option.
The delegation can be done by power of attorney appointing any suitably qualified person to be a Trustee (provided that person meets the requirements of section 96 of the Trusts Act to be a Trustee, for example, excluding an undischarged bankrupt, a child, someone who lacks the capacity to be a Trustee or a body corporate that is subject to an insolvency event).
Keeping an eye on things
If a Board does delegate something, they are obliged to keep an eye on the arrangements. Section 68 of the Trusts Act requires Trustees to keep under their review the arrangements for how the appointee acts and how the arrangements are put into effect. They must also be willing to intervene if required, and to give directions to the appointee, or to amend, revoke, or replace the appointee, as required.
No delegation when executing deeds
One thing that Trustees cannot delegate is the signing of a deed. A deed is a particular type of legal contract that typically has high legal significance. An example is a Deed of Lease.
Under section 19 of the Charitable Trusts Act 1957, when Trustees enter into a deed on behalf of the trust, two Trustees must sign the document and affix the common seal. (All charitable trusts in New Zealand must have a common seal for this reason. Find out more in our article.) Trustees should also check what other signing requirements are in place within the Trust Deed.
If a deed is executed without following the process under the Act (and the Trust Deed), if the validity of the deed were questioned there is a risk that the deed may be found to be invalid leading to various possible consequences.
Trust Advisors
Trustees are ultimately the key decision makers for a Trust. However, the Trusts Act 2019 at section 74 permits Trustees to appoint special trust advisors to advise the Board, for example, if Trustees need specialist advice about a particular matter. Trustees are not obliged to follow any advice provided by a special trust advisor. Note that special trust advisors do not have the powers of a Trustee and even if Trustees follow a special trust advisor’s advice, the Trustees have responsibility as the decision-makers.
In summary
Delegation is a useful way of managing the work load in charitable trusts as long as Trustees keep in mind that they are always ultimately responsible for the actions of the Trust, and that not everything is able to be delegated.
If you have any questions about delegation within charitable trusts, please do not hesitate to get in touch. We would be pleased to help clarify what is permitted, to help Trustees make sound decisions within their permitted powers.
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The information contained in this outline is of a general nature, should only be used as a guide and does not amount to legal advice. It should not be used or relied upon as a substitute for detailed advice or as a basis for formulating decisions. Special considerations apply to individual fact situations. Before acting, clients should consult their Parry Field Lawyer.
