Contents

Chapter 4
Trustees’ powers

Power to delegate

Proposal
P16 New legislation should include a new provision on delegating a trustee’s powers, duties and discretions by power of attorney. The provision should:
(a)add temporary mental incapacity to absence from New Zealand and temporary physical incapability as the circumstances in which the power of delegation can be exercised;
(b)restrict the duration that a delegation may be in force to a mandatory maximum of 12 months, with the possibility of one extension of up to an additional 12 months. The delegation should only be able to be extended by the trustee;
(c)require trustees delegating their power to notify any co-trustees and any person with a power to appoint and remove trustees;
(d)retain the current position that the trustee is only liable to beneficiaries for the actions or default of the delegate if he or she did not exercise good faith and reasonable care in the appointment of the delegate;
(e)clarify that the default position is that a delegate may exercise the power to resign on behalf of a trustee who has delegated his or her powers;
(f)retain the current position of allowing delegation to a sole co-trustee only if that co-trustee is a statutory trustee corporation;
(g)require sole trustees who are delegating to notify any person with the power to appoint and remove beneficiaries, or if none, all adult vested beneficiaries (where it is reasonable to do so) or a reasonably representative sample of beneficiaries;
(h)allow for a co-trustee or a beneficiary to apply to the Public Trust for the Public Trust to consent to become the delegate for a trustee who is unavailable to make a decision, and cannot be contacted for any reason, and there is no delegation in place; and
(i)provide that any delegation may be limited to some rather than all of the trustee’s powers, duties and discretions, and may exclude specific powers, duties and discretions, including the power to resign.
Please give us your views on this proposal.

Current law

4.36A delegation under section 31 of the Trustee Act enables the substitution of a trustee by another person who can take over their duties, powers and discretions. Unlike an agent under section 29, which can only fulfil certain powers of the trustee, a delegate can take the trustee’s place in exercising all of the trustee’s duties, powers and discretions. This may only occur where the trustee is leaving or is about to leave New Zealand, or expects to be absent from New Zealand from time to time, or is or may become temporarily incapable of performing his or her duties on account of physical infirmity. Under section 31, a delegate has, within the scope of the delegation, the same trusts, powers, authorities, discretions, liabilities, and responsibilities as the trustee would have.

Issues

4.37Concerns have been raised about the limited circumstances in which a delegation can apply, and in particular, its non-application to temporary mental incapacity. Other jurisdictions, such as the United Kingdom and British Colombia, have moved towards introducing additional safeguards on the exercise of this power to strengthen the position of beneficiaries, such as limiting the duration of a delegation, requiring the trustee to notify others that the delegation has occurred and retaining some liability for the trustee where the delegation is in force. We have considered whether these types of safeguards need to apply in New Zealand also.

Discussion

4.38We considered the option of removing all restrictions on when a trustee may delegate his or her powers and leaving it open. The current position is widely thought to be too restrictive. Yet the desire for flexibility must be balanced against the need to ensure the power does not become overused. There are usually good reasons why a particular person is appointed as trustee, such as the skills and knowledge he or she brings to the role. It is therefore not desirable to make it too easy to allow someone to act in the trustee’s place or for such a substitution to persist for a long period. We were not persuaded that it is necessary to greatly widen the circumstances when the power to delegate can be used by completely removing the criteria for when a delegation can be made. The most common comment from submitters in relation to this issue was that temporary mental incapacity should be a circumstance in which a delegation can apply.134  Delegation for a trustee suffering from temporary mental incapacity would have to be set up in advance as he or she would not be able to delegate his or her powers when mentally incapacitated. Extending the criteria to cover temporary mental incapacity will alleviate this concern, but means that the doors are not opened to trustees delegating their powers without a justifiable reason.
4.39The United Kingdom statute and British Columbia draft Bill both include a limit of 12 months on the duration of a delegation.135  Several submitters suggested that this was a useful restriction on this power. The 12 month period would be a good indicator to a trustee considering delegating his or her powers of when delegation is appropriate and when it would be better to resign. We consider that a 12 month limit reflects the intention that a delegation is only temporary. We favour allowing the trustee to extend a current delegation by a further 12 months as this introduces an added flexibility when circumstances do not exactly fit the 12 month timeframe.

4.40The majority of submitters, including the NZLS, the Trustee Corporations Association and Greg Kelly Law, were of the view that requiring a trustee to inform co-trustees and any person with a power to appoint and remove a trustee was an appropriate safeguard. This is an obligation that will take some time and effort on the trustee’s behalf but as the provision would only require notification to certain parties, it would not be overly onerous. Introducing a notification requirement ensures that those who most need to know that the trustee has delegated his or her power do know.

4.41We favour maintaining the current position with regard to the trustee’s liability to beneficiaries for the delegate’s actions and defaults. This differs from the approaches in the United Kingdom and British Columbia, and some submitters did suggest that trustees should be liable for a delegate’s actions. However, it is fairer to the trustee to limit liability to when they have not exercised good faith and reasonable care in the exercise of the delegation as they cannot easily do more than this when they are in the circumstances that allow a delegation. We are also unaware of any problems with this approach to the trustee’s liability currently. Most submitters agreed with this approach.

4.42The current approach of allowing trustees to delegate to a sole co-trustee only if that co-trustee is a statutory trustee corporation differs from the approach generally taken in other jurisdictions where a trustee cannot delegate to the sole co-trustee. The more flexible approach that currently exists here is more suitable to the smaller New Zealand context where it may be difficult to find suitable delegates. Maintaining the current approach continues to protect against the risk of an individual becoming sole trustee in a trust that was intended to have at least two trustees.

4.43Most submitters considered that sole trustees should continue to be able to delegate. We consider that this is a practical necessity and that it would be unhelpful to require all sole trustees facing circumstances where they temporarily cannot carry out the role to resign. We consider that a notification requirement should be introduced for delegations by sole trustees. Without this there is a risk that no-one will know of the delegation and beneficiaries will not know who has the power to deal with the property or who they can hold to account. It is straightforward for a sole trustee to notify a person with the power to appoint and remove beneficiaries where there is one, but where there is not, a meaningful notification can only be to some or all of the beneficiaries. A “reasonably representative sample of beneficiaries” has been proposed as the way of determining which beneficiaries should be informed if it is not practical and reasonable to contact all adult vested beneficiaries. This conveys the need to inform the appropriate range of beneficiaries that should know in the given circumstances that a delegation has been made.

4.44The option of having the Public Trust, with its consent, become the delegate where there is no-one else to act as trustee has been suggested as a way of remedying a problem that occurs when a trustee cannot be contacted and has not put a delegation in place. This measure avoids there being no-one available to make a decision. The Public Trust has agreed that this is of a similar nature to their current powers and could be an acceptable extension to their current role.

134Key submissions on the power to delegate were received from Greg Kelly Law, the NZLS, Peter McMenamin, Chapman Tripp, Taylor Grant Tesiram, the Ministry of Social Development and the Trustee Corporations Association.
135Trustee Act 1925 (UK) 15 & 16 Geo V c 19, s 25; see cl 9 of the proposed Trustee Act in British Columbia Law Institute, Committee on the Modernization of the Trustee Act A Modern Trustee Act for British Columbia (BCLI Report No 33, 2004), at 35−37.