4.6The Trustee Act includes a number of sections that give trustees administrative powers in respect of trust property. Several of the provisions relate to the power to operate a business. The statutory powers are default powers that can be varied or overridden in a trust deed.
4.7The powers provisions are lengthy, complex sections that are difficult to follow and understand. Most trust deeds override the statutory powers by including specific powers and do so in detail. The current default powers are not relied upon because they do not reflect modern realities and are usually more restrictive than is desired in a modern trust deed. Because trusts take a greater variety of forms and are used in more numerous ways than was the case when the legislation was enacted, it would be more useful to have more flexibility in the default provisions.
4.8While many of the administrative powers were intended to provide sufficiently wide powers to trustees to enable them to do all they needed to manage trust property, the business-related powers in the Trustee Act deliberately limit the scope of what a trustee can do with a business. The business-related powers are intended to allow a trustee to do what is needed to wind up a testator’s business and minimise the risk to the trustee. In particular, section 32, which provides the default power to carry on business, applies only to testamentary trusts and generally applies only for two years. The statutory default business-related powers do not accord with modern practice where many trusts are established in order to run businesses and trustees need broad, flexible powers relating to trust businesses. Modern trust deeds will often opt out of the statutory business-related power provisions.
4.9The options considered for the administrative powers were:
4.11We have considered whether the proposed reforms are in beneficiaries’ interests. The proposals do give trustees wider powers to do things with trust property. The current limits on trustee powers may provide some protection for beneficiaries or a permitted purpose by potentially limiting the ability of trustees to engage in high risk activities or fail to protect trust property. But the limits imposed are specific and may inhibit what a trustee can do too much or in unwanted ways. Increasing trustees’ powers could give them the ability to make better choices in how the trust property is managed. We consider that the better way to ensure that trustees act appropriately in the beneficiaries’ interests or for the trust’s purpose is to give the duties of trustees prominence in the statute.
4.12There was general support for also including a non-exhaustive list of the powers in the new Act. The New Zealand Law Society (NZLS) thought that this would be useful as a template. Greg Kelly Law and the Trustee Corporations Association commented that lawyers prefer to have specific clauses to point to in order to show a trustee has a particular power. A schedule of included powers would combat the concern that the new approach would be less clear than specific powers provisions. The schedule would make it explicit to third parties dealing with trustees, for instance banks lending to trustees, that the trustees have the requisite powers. While there could be a concern the schedule may cause some confusion as readers may rely on the schedule rather than the general provision, we consider that this can be alleviated by making it clear in the wording that the list is non-exhaustive and for the avoidance of doubt.
4.13Submitters were unanimously supportive of altering the approach to the business-related powers to make them more flexible and enabling. They commented that it is usual to draft trust deeds that empower trustees to carry on a business without the limits imposed by the statutory provisions.
4.14These proposals would work well within our proposed framework of setting out in summary form at the front of the new legislation the key features and requirements for the establishment of a trust and the duties of trustees. The structure of the new Act would make it clear that the powers are subject to the duties of trustees and objects of the trust. This would ensure that, although the powers of a trustee are ostensibly broadened by the new approach, what a trustee may do with trust property is always controlled by their general obligations to beneficiaries or the purpose of the trust.