NZ CFS L5 Trustee Services cheat sheet

Trustee Act 1956 (NZ) supplies default trustee powers and duties; the Trusts Act 2019 replaced much of it from 30 January 2021, so identify which Act governs the trust or the point in time.

Trusts Act 2019 sets 10 mandatory duties (ss 22-27) that a trust deed cannot exclude: know the terms, act honestly and in good faith, act for beneficiaries' benefit, act in accordance with terms, hold and manage trust property, and act unanimously where trustees are joint.

Financial Markets Conduct Act 2013 governs offers of financial products and, via the FMC licensing regime, imposes fair dealing and disclosure obligations on trustees of managed investment schemes and other licensed providers.

AML/CFT Act 2009 (NZ) requires reporting entities to complete customer due diligence, beneficial ownership identification, ongoing monitoring, and suspicious activity reporting to the FIU.

Under the AML/CFT Act, a trust is generally a customer requiring CDD on the settlor, trustees, beneficiaries with vested or controlling interests, and any controlling person.

Trustee companies providing financial services may be reporting entities under the AML/CFT Act; obligations include a risk assessment, compliance officer, and record retention for at least 5 years.

The Trusts Act 2019 requires trustees to retain trust records and make certain information available to beneficiaries on request (ss 45-51), subject to permitted withholding grounds.

Privacy Act 2020 and the Tax Administration Act 1994 (including the 39% trustee tax rate for most trusts from 2024) intersect with trustee record-keeping and disclosure duties.

A trust is an equitable obligation binding a trustee to deal with property for the benefit of beneficiaries; legal title sits with the trustee, beneficial (equitable) title with beneficiaries.

Fiduciary duties arise where one party acts for another's benefit with discretion; core incidents are loyalty, no conflict of interest, no unauthorised profit, and acting in good faith.

Certainty of intention, certainty of subject matter, and certainty of objects are the three certainties required for a valid express trust.

A trust is not a separate legal entity: the trustee is the legal owner and is liable in contract and tort, with a right of indemnity out of trust assets.

Beneficiaries may enforce the trust; a bare (fixed) beneficiary with vested interest has a proprietary right in trust property.

Resulting trusts arise by operation of law where beneficial interest is not fully disposed of; constructive trusts arise to prevent unconscionable conduct or remedy breach of fiduciary duty.

The beneficiary principle requires identifiable beneficiaries (or a valid charitable purpose); purpose trusts generally fail unless charitable or statutory exceptions apply.

A trust deed should state the settlor, trustees, beneficiaries (or class), trust property, powers, discretions, distribution rules, and administrative provisions.

Discretionary (family) trusts give trustees discretion over distributions; beneficiaries hold no vested interest until a distribution is made.

Fixed trusts specify each beneficiary's entitlement; bare trusts hold property absolutely for a beneficiary who can demand it at any time.

Charitable trusts must satisfy the Charities Act 2005 for registration and tax-exempt status; purposes must be charitable under the recognised heads.

Trusts can be created inter vivos (during life) or by will (testamentary); the rule against perpetuities is addressed by the Trusts Act 2019 maximum duration of 125 years.

A trust deed can be varied either under an express variation clause or by the court under s 124 Trusts Act 2019 (or the inherent jurisdiction).

Foreign trusts and certain other trusts have specific registration and disclosure obligations under the Tax Administration Act and AML/CFT Act.

Mandatory duties under Trusts Act 2019 ss 22-27 cannot be excluded or modified by the trust deed; default duties (ss 28-38) may be modified or excluded.

Default duties include the duty to act impartially among beneficiaries, not to profit from the trust, to avoid conflicts, and the duty of care and diligence.

Trustees must act unanimously unless the deed authorises majority decisions or a trustee is disqualified.

Trustees have powers to invest, acquire and dispose of trust property, insure, and advance funds, subject to the deed and the Trusts Act 2019.

A trustee is liable for breach of trust; relief may be available under s 131 Trusts Act 2019 if the trustee acted honestly and reasonably and ought fairly to be excused.

A trustee's right of indemnity out of trust assets may be limited by the deed; personal liability can be excluded by contract but not for fraud or dishonesty.

Trustees must exercise discretions properly: consider relevant matters, ignore irrelevant ones, act in good faith, and not act for an improper purpose.

Trustees must keep proper records of trust property, receipts, payments, and decisions; the Trusts Act 2019 requires records to be available to beneficiaries on request, subject to withholding grounds.

Trust accounts should be kept separate from the trustee's own funds; commingling is a breach of trust and a risk indicator under AML/CFT.

Trustee resolutions should be documented contemporaneously, recording the decision, reasons, and any conflict considered.

Annual trust financial statements should show income, expenses, distributions, and asset values; tax returns (IR6 for most trusts) are required annually.

The trustee tax rate in New Zealand is 39% for most trusts from the 2024-25 income year; distributions to beneficiaries may be taxed at the beneficiary's rate.

AML/CFT record-keeping requires CDD records and transaction records to be retained for at least 5 years after the business relationship ends.

Trust reviews should cover trustee appointments, deed variations, distributions, and changes in beneficiaries or circumstances.

Trustees have a duty to invest trust assets prudently, considering risk, diversification, liquidity, and the needs of beneficiaries.

The prudent person standard requires the care, diligence, and skill of a person of ordinary prudence managing their own affairs, applied to the trust's circumstances.

The Trusts Act 2019 default investment duty (s 29) requires trustees to invest in the best interests of beneficiaries and to exercise the care and diligence of a prudent person.

Diversification is a default duty unless the deed excludes it; concentrated holdings should be justified and documented.

Trustees should document an investment policy, review performance, and consider ethical or non-financial factors only where consistent with the trust's purposes.

Delegation of investment management is permitted under the Trusts Act 2019 where the trustee retains oversight and monitors the delegate.

Trustees must consider beneficiary needs, income versus capital, and the trust's purpose when making or reviewing investments.

Beneficiaries have rights to information under Trusts Act 2019 ss 45-51, including trust terms, trustee changes, and certain financial information, subject to withholding grounds.

A trustee must disclose a conflict of interest and generally must not vote or act where personally interested, unless the deed authorises it.

Distributions should be made in accordance with the deed, documented by resolution, and consistent with the trustee's duty to act impartially.

Trustees should consider whether a beneficiary is a minor, incapacitated, or subject to creditor or relationship property claims when making distributions.

Self-dealing and obtaining a personal benefit from trust property are breaches of fiduciary duty unless authorised by the deed or the court.

Beneficiaries may apply to the court to enforce the trust, remove trustees, or seek directions under the Trusts Act 2019.

Trustees should maintain a conflicts register and document how each conflict was managed.

Trustee service providers should act with integrity, objectivity, confidentiality, and professional competence, consistent with the Code of Professional Conduct for financial advice and FMA conduct standards.

Client relationship management requires clear engagement terms, fee disclosure, and communication of the trustee's role and limitations.

Confidentiality is subject to legal exceptions: AML/CFT reporting, court orders, and statutory disclosure obligations.

Fees must be authorised by the deed or statute and disclosed; unauthorised profit is a breach of fiduciary duty.

Complaints and disputes should be handled through a documented process; disputes resolution schemes may apply to licensed financial service providers.

Vulnerable clients (elderly, incapacitated, or under undue influence) require additional care, documented assessments, and consideration of capacity.

Professional development and supervision support competence; record-keeping should demonstrate the reasoning behind trustee decisions.