Contents

Chapter 4
Trustees’ powers

Administrative powers

Proposal
P11
(1) The administrative powers of trustees, including business-related powers, in the Trustee Act 1956 (ss 14−21, 24, 32−33 and 42A, 42B and 42D) should be replaced by a general provision giving trustees the same powers in relation to trust property that the trustee would have if the property were vested in the trustee absolutely and for the trustee’s own use. The provision should state that while the trustee has competence to do all that a natural person can do with his or her own property, the trustee is subject to the trustees’ duties and objects of the trust.
(2) The new legislation should include a schedule which sets out a list of commonly used powers that a trustee has under the new provision. The schedule should be prefaced by wording such as “for the avoidance of doubt, the powers of a trustee granted under [the general powers provision proposed above] include, but are not limited to, the following: …”. The powers listed in the schedule should include those covered by the following sections of the Act, but state them in general terms and without the restrictions that currently apply:
  • s 14 (including the powers to sell, exchange, let, partition, postpone, lease, purchase, build a house);
  • s 15 (including the powers to spend money repairing, maintaining, or developing; subdivide; grant easements; pay rates, insurance and other outgoings; vary a mortgage);
  • s 16 (including the powers to sell by auction or tender);
  • s 17 (including the power to sell by deferred payment);
  • s 18 (power to sell subject to depreciatory conditions);
  • s 19 (power to give receipts);
  • s 20 (power to compound liabilities);
  • s 21 (power to raise money by sale, conversion, calling in or mortgage);
  • s 24 (power to insure and recover the costs of premiums);
  • s 32 (powers to carry on a business, trade or occupation; purchase stock, machinery, implements and chattels for the purposes of the business; employ people in the business; enter into a partnership agreement);
  • s 32A (power to acquire or retain shares in any co-operative company);
  • s 33 (powers to convert or join in converting any business into a company; promote a company for taking over the business; sell or transfer the business to a company);
  • s 42A (power to set aside reserve income or profits arising from the business and retain it as capital, and to use this for business or trust purposes);
  • s 42B (power to pay or apply any capital money or asset employed in the business for the maintenance or benefit of an income beneficiary where the income available for distribution is insufficient for the proper maintenance of that beneficiary, and to recoup some or all of that sum from the income arising from the business in a subsequent period); and
  • s 42D (power to adopt an accounting period for the business that commenced before the start of the trust and adopt as a final accounting period a period that ends before the termination of an interest in the trust).
(3) The schedule should also include the following additional powers:
  • the power to seek legal, financial or other advice;
  • the power to open a bank account in the name of another person; and
  • the power to give a guarantee.
Please give us your views on this proposal.

Current law

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.

Issues

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.

Options for reform

4.9The options considered for the administrative powers were:

(a)retaining individual powers provisions, but modernising the language and approach of each;
(b)replacing the powers provisions with a general competency provision; or
(c)replacing the powers provisions with a general competency provision and a schedule containing a non-exhaustive list of common powers that this includes.

Discussion

4.10Replacing the current myriad of outdated powers provisions with a general competency provision has the benefits of simplifying and modernising the statute, according with common practice in deed drafting and creating more flexibility. Nearly all submitters to the Fourth Issues Paper131  on this topic agreed with this option.132  The comments were made that the current provisions are too complicated and not useful, and that this new approach would mean there would be less argument about whether trustees have the power to do something and more focus on the duties that trustees must perform. The Māori Land Court commonly uses the approach of giving trustees general powers to be used within the bounds of trustees’ duties while setting out certain powers for many trust orders for Māori land.

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.

131Law Commission The Duties, Office and Powers of a Trustee: Review of the Law of Trusts – Fourth Issues Paper (NZLC IP26, 2011).
132Key submissions on this topic were received from Chapman Tripp, the New Zealand Law Society (NZLS), and the Trustee Corporations Association.