NZ CFS L5 Trustee Services key terms

A legal relationship in which one party is trusted and obliged to act in the best interests of another, placing the other's interests ahead of their own. Trustees, agents, and company directors commonly owe such duties.

A person or entity holding legal title to trust property and obliged to administer it for the benefit of beneficiaries in accordance with the trust deed and the law. The trustee does not own the property beneficially.

The person who creates a trust by transferring property to a trustee on terms set out in a trust deed or declaration. Once the trust is constituted, the settlor generally steps outside it.

A person or class of persons entitled, actually or contingently, to the benefit of trust property or income. Beneficiaries may hold vested or discretionary interests and have rights to information and to hold trustees accountable.

The written document setting out the terms of a trust, including the trustees' powers and discretions, the classes of beneficiaries, distribution rules, and administrative provisions. It is the trustee's primary governing instrument.

The point at which a trust comes into existence: certainty of intention, certainty of subject matter, and certainty of objects are satisfied and trust property is vested in the trustee.

The requirements for a valid express trust: certainty of intention to create a trust, certainty of the trust property, and certainty of the beneficiaries or purpose. Uncertainty in any element can invalidate the trust.

A trust in which beneficiaries' entitlements to income or capital are specified in advance, so the trustee has no discretion over who benefits or in what shares, only over administration.

A trust in which the trustee may choose which members of a defined class of beneficiaries receive distributions and in what amounts, within the terms of the deed. Beneficiaries have no fixed entitlement until a distribution is made.

A person within the class of eligible beneficiaries of a discretionary trust who may receive a distribution but has no enforceable right to any particular amount until the trustee exercises the discretion.

A beneficiary's present fixed entitlement to trust property or income, whether or not possession is deferred. A vested interest may still be subject to divestment in specified circumstances.

A beneficiary's entitlement that depends on a future event, such as reaching a stated age or surviving another person. Until the condition is met, the beneficiary has no vested right.

An informal, non-binding document in which a settlor or testator records preferences about how trustees should exercise discretions. Trustees should consider it but are not legally obliged to follow it.

A core fiduciary duty requiring a trustee to act solely in the interests of the trust and beneficiaries, avoiding personal profit from the trust and unauthorised conflicts between duty and personal interest.

The principle that a trustee must exercise their powers personally rather than delegate them, except where the trust deed, statute, or agent appointment rules permit delegation. Delegation does not remove the trustee's ultimate responsibility.

The trustee's obligation to exercise the care, diligence, and skill that a reasonably prudent person would use in managing their own affairs, applied to the administration of the trust and its investments.

The trustee's obligation to balance fairly between beneficiaries, particularly between income beneficiaries and capital beneficiaries and between current and future beneficiaries, when making decisions.

A transaction in which a trustee deals with trust property for their own benefit or with a party connected to them. Such transactions are generally voidable unless authorised by the deed, statute, or the court.

A situation where a trustee's personal interest, another role, or a duty to a third party may improperly influence decisions about the trust. Trustees must identify, disclose, and manage such conflicts.

A dealing between the trust and a trustee, beneficiary, or entity connected to them. It requires careful scrutiny, disclosure, and compliance with any deed or statutory authorisation before proceeding.

The investment benchmark requiring a trustee to invest with the care, skill, and diligence of a prudent person managing their own assets, considering risk, diversification, and the purposes of the trust.

Spreading trust investments across assets, sectors, and issuers to reduce risk. Trustees are generally expected to diversify unless the trust deed or circumstances make it inappropriate.

A written document setting out the objectives, risk tolerance, permitted asset classes, liquidity needs, and review process for a trust's investments. It guides and evidences the trustee's investment decision-making.

The division of trust investments among asset classes such as cash, fixed income, equities, and property. It should reflect the trust's time horizon, distribution needs, and risk profile.

A beneficiary entitled to trust income, such as interest, dividends, or rent, rather than the underlying capital. Their interests must be balanced against those of capital beneficiaries.

A beneficiary entitled to the trust's capital, often on termination or at a specified age. Trustees must preserve capital fairly while meeting income entitlements.

The payment or transfer of trust income or capital to a beneficiary in accordance with the trust deed. Trustees should document the decision, ensure authority, and consider tax consequences.

A power conferred on trustees to choose among permitted courses of action or beneficiaries. Discretions must be exercised honestly, in good faith, for a proper purpose, and with regard to relevant considerations.

A formal written record of a decision made by the trustees, including the date, decision, reasons, and any conflicts considered. Resolutions provide evidence of proper exercise of powers and discretions.

The day-to-day management of a trust, including record keeping, accounts, tax filings, distributions, investment monitoring, and communications with beneficiaries, all in accordance with the deed and law.

Financial records showing trust income, expenses, assets, and distributions, kept separately from the trustee's own funds. Accurate accounts support reporting to beneficiaries and compliance obligations.

The trustee's obligation to maintain accurate and accessible records of trust property, transactions, decisions, and correspondence. Records should be retained for the period required by law and the deed.

The entitlements of beneficiaries to enforce the trust, receive information and accounts, and hold trustees accountable. The scope of information rights can be limited by the deed or statute.

A trustee's personal responsibility for losses caused by breach of trust or failure to meet required standards. Liability may be limited by the deed, statute, or court relief where the trustee acted honestly and reasonably.

A failure by a trustee to comply with the terms of the trust or the duties imposed by law, whether by act or omission. Remedies can include compensation, restoration of property, or removal of the trustee.

A trustee's right to be reimbursed from trust assets for properly incurred expenses and liabilities, or a right to protection against loss. Improperly incurred costs are generally not indemnifiable.

The anti-money-laundering and counter-financing-of-terrorism duties imposed on trustees and trust service providers, including customer due diligence, risk assessment, record keeping, and suspicious activity reporting.

The process of identifying and verifying clients, beneficial owners, and the source of funds or wealth before and during a business relationship, as required by AML/CFT law.

The identity of the natural persons who ultimately own, control, or benefit from trust property or an entity. Trustees must identify and record beneficial owners under AML/CFT and transparency rules.

The ethical and behavioural standards expected of trustee service providers, including integrity, competence, confidentiality, managing conflicts, and acting in clients' best interests.