Managing Your Trust - Trustees Must Act Jointly

Most Discretionary Family Trusts provide that decisions of trustees are to be unanimous. Many  commentators agree that providing for unanimous resolutions is a safeguard against abuse and, when there is an independent trustee appointed, possibly a safeguard against claims by creditors, including the Inland Revenue.

In fact, unless the Trust Deed provides otherwise – which we do not recommend – we consider that without exception trustees of Family Trusts must make decisions unanimously. When the Trust Deed does provide that a decision by a majority of trustees may suffice, all the trustees will be bound jointly and severally.

For resolutions to be unanimous, all the trustees must have put their minds to the matter to be decided upon. All trustees must make a personal decision.

It is an established rule of law that a trustee must not delegate his or her duties or powers, not even to co-trustees. For example, trustees have no authority to delegate to another trustee a general authority to make decisions on their behalf. A trustee has a duty to act personally.

Delegation is only allowed:

• where specifically permitted by the Trust Deed; or
• where specifically permitted by statute; and
• is for practicable purposes unavoidable; and
• is in the usual course of business; and
• concerns administrative tasks only; and
• the particular agent is employed in the ordinary scope of his or her business.

The New Zealand Court of Appeal has considered whether an independent trustee will be bound by an action which, although in line with past practice, was not one the independent trustee had been consulted about. The Court held that while there was an empowering clause which authorised the trustee to appoint agents to implement decisions made by them, it did not empower the trustee to delegate to an agent a decision making authority which was reserved to the trustees.

In addition to trustees having to act personally, trustees hold assets of the Trust personally.  For example, a 2010 decision of the High Court held that if a property is transferred from a person in his or her personal name to that person as trustee (even where there are other trustees), the legal status of that person as owner does not change.  The facts of this decision were as follows.

The trustees sold a property held by themselves on behalf of the beneficiaries of a Trust.  Under the standard Sale and Purchase Agreement, the trustees, as vendors, warranted that any building works completed by the vendors:

1. had appropriate building consents and were completed accordingly;
2. had been issued a Code Compliance Certificate; and
3. complied with the Building Act 1991.

The previous owner of the property was one of the trustees, Ms S.  While Ms S owned the property in her own right, defective building works were completed.  After the defective building works were completed, the Trust was formed and the property was transferred into the trustees' names.   The Court held that Ms S' status as owner never changed.  Ms S was liable as vendor.  Further, because trustees are jointly and severally liable, the independent trustee was also liable – even though the Trust did not exist at the time of the relevant defective building works.

The moral of this article is that trustees must consult, consider and record all important decisions to be made in respect of the Trust.

For more information, please contact Tony Fortune, Kesha Meredith or Katherine McCarthy.

August 2011