Guidelines For Trustees (Family Trusts or Charities) 09 Dec 2011

Parry Field Lawyers provide legal advice on a range of trust matters including formation and operation of both family trusts and charitable trusts.

Trust Records

We strongly recommend that you put together a trustee minute book (say, an Eastlight folder with divisions) which will be a complete record of all trust matters.

The records that should be centralised in parts of your minute book should include the following:

• Copy of the trust deed
• Minute book resolutions (to record all trust decisions but generally not the reasons).
• Annual accounts
• Cash book or cheque book and statements

Schedule of assets and liabilities.

• Copies of relevant correspondence
• Details of beneficiaries e.g. dates of birth, addresses
• If the Trust has investments, then an investment plan in line with the stated objectives of the trust.
• The written advice of a qualified Financial Planner or Consultant should be included and ignored at the peril of Trustees if investments are moderate or substantial in size.

Trust Procedures

Remember that all Trustees must discuss, meet and agree on issues. Trustees are not to be treated as "rubber stamps" in the decision making process. Each Trustee must consider issues independently and not be under the influence of other Trustees.

Please contact us if the trustees wish to make any distributions from the trust or to accept gifts or loans. Trustee meetings and Minute Book Resolutions are needed to show consideration of all beneficiary interests.

Tax

The trust may need to register with the New Zealand Inland Revenue Department and obtain an IRD number. The IRD takes the view that every trust should file an annual tax return even if it does not earn any income and, say, only owns the family home. Failure to comply with this can have serious consequences so each year tax returns may need to be filed.

The Trustees will also need to open a bank account for the trust and the Bank will want to see a copy of the signed trust deed. Provided you continue to use that bank account you have opened for the trust for all its cash transactions, i.e. receipt of income, trust expenditures, then the bank statement can be used as the basis of the preparation of any necessary tax returns. The bank account also helps keep all trust financial matters separate from those of individuals who are settlors or trustees.

If the trust earns income, you should be aware that the tax treatment of trusts can involve accrual accounting and you should discuss this with an accountant before the first tax return is filed.

Trustees Duties

Trustees are required, at the least, to carry out the following duties:

• The Duty to Know the Trust Deed.
• The Duty to Know What the Trust Assets and Liabilities Are, the Actions of Former Trustees, and the State of the Trust.
• The Duty to Advance the Trust Purposes: Fiduciary Duties of Honesty Loyalty, and Acting in the Best Interests of the Trust.

Duties of Care, Skill and Diligence

• The Duty to be Impartial between beneficiaries.
• The Duty to not delegate Trusteeship Duties.
• The Duty to Carry out Duties Without Payment.
• The Duty to not make a personal profit from Trust Funds.
• The Duty to Pay Money to the Right People.
• The Duty to Keep and Render Proper Accounts and Supply Full Information.
• The Duty to Invest Promptly and Prudently.
• The Duty to Take Advice.

Miscellaneous Duties

• The Duty to Sell Wasting Property ie property which deteriorates.
• The Duty to Insure the Trust Assets.
• The Duty to Keep Trust Assets and Securities Safe.
• The Duty to Keep an Inventory of Assets.
• The Duty to Invest Within a Reasonable time.
• The Duty to Repair Trust Property.

Finally

Failure to keep the above records and procedures can endanger the effect of the trust and all its benefits could be lost should it come under scrutiny. In all things it is important that the trust keep a clear audit and paper trail. We can assist in administration of this so please do not hesitate to contact us.

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.

Should you need any assistance with this, or with any other trust matters, please contact Grant Adams or Ken Lord (348-8480) at Parry Field Lawyers.