The importance of modifying default duties in trust deeds: Enabling Trustees to act in the best interests of beneficiaries

Introduction:

In New Zealand, the Trusts Act 2019 introduced a comprehensive set of default duties that apply to trustees, outlining their responsibilities and obligations in managing trusts. While these default duties provide a necessary framework for trustee conduct, it is essential to recognise the importance of modifying or excluding these duties by express terms in the trust deed. Such modifications allow trustees, who are also beneficiaries, to actively participate in trustee decisions and enable them to make investments that may not strictly adhere to conventional notions of prudence but serve the best interests of the trust's beneficiaries.

Flexibility for Trustees who are Beneficiaries:

One of the critical aspects of trust administration is the ability of trustees to make informed decisions that serve the beneficiaries' welfare. However, the default duties outlined in the Trusts Act 2019 create limitations for trustees who are also beneficiaries. These default duties often restrict trustee involvement in decision-making processes that directly affect their own interests as beneficiaries.

By modifying or excluding default duties, the trust deed can provide trustees who are beneficiaries with the necessary flexibility to actively participate in trustee decisions. These modifications recognise the inherent knowledge and vested interest these trustees have in the trust's affairs, enabling them to make well-informed choices that align with the beneficiaries' welfare.

Expanding Investment Options:

Another critical aspect of modifying default duties is to allow trustees to make investments that may deviate from conventional notions of prudence when appropriate for the beneficiaries' welfare. While prudence is typically a fundamental principle in trust investment, certain circumstances may arise where alternative investment choices may better serve the beneficiaries needs.

For instance, consider a scenario where the trust has elderly beneficiaries in need of suitable accommodation for their retirement years. Purchasing a retirement village apartment, which declines in value by 20 to 30% over 3 to 5 years, could provide these beneficiaries with a comfortable and secure living environment. While such an investment may not align with traditional prudential standards, it caters to the unique requirements and well-being of the beneficiaries.

Similarly, there may be situations where the trust's beneficiaries require reliable transportation, and purchasing a car becomes a sensible solution. Although acquiring a vehicle is not typically considered a prudent investment, it serves the beneficiaries' immediate and essential needs.

By modifying default duties, the trust deed empowers trustees to consider the individual circumstances and specific needs of the beneficiaries. This flexibility allows trustees to make investments that may not strictly adhere to conventional notions of prudence but are justified in light of the beneficiaries' well-being.

Balancing Interests and Safeguarding Trust Assets:

While the modification or exclusion of default duties grants trustees the freedom to act in the best interests of the beneficiaries, it is crucial to maintain a balance that safeguards the trust's assets. The trust deed should include clear provisions that outline the parameters within which trustees can exercise this flexibility. These provisions may specify guidelines for investments that deviate from conventional prudence.

Furthermore, the trust deed should emphasise the trustees' duty to act honestly, in good faith, and in the beneficiaries' best interests, even when making decisions that involve their own interests. This ensures that trustees exercise their discretion responsibly and avoid any conflicts of interest that may compromise the trust's integrity.

Conclusion:

In conclusion, modifying or excluding default duties in the trust deed plays a crucial role in enabling trustees, who are also beneficiaries, to actively participate in trustee decisions and make investments that may deviate from conventional prudential standards but serve the beneficiaries' welfare. By allowing flexibility within the trust structure, trustees can adapt to unique circumstances and make informed choices that cater to the beneficiaries' welfare.

It is crucial to seek legal advice and ensure that any modifications or exclusions of default duties in the trust deed comply with the relevant laws and regulations. By working closely with experienced legal professionals, trustees can craft a trust structure that strikes the right balance between flexibility, accountability, and the protection of the trust's assets.