Chapter 1
The trusts context in New Zealand

What is a trust?

1.4At its most simple, a trust is a legal relationship whereby someone (the settlor) gives property to someone (the trustee) to look after it and use it for the benefit of someone (the beneficiary). The relationship places legally enforceable obligations on the person holding the property to manage it for the benefit of the person entitled to receive the benefits of the property. For example, person A gives property to person B, who becomes the legal owner of the property and is under an obligation to deal with the property for the benefit of person C. At the heart of the concept of a trust is a separation between the person holding and managing the property, and the person or persons receiving the benefits of the property. The beneficiary and trustee have different sets of rights in relation to the same property, whereas when a person owns property outright, he or she has all of the rights in the property.

1.5We recognise that this is an over-simplified characterisation of a trust and one that focuses on a private trust. Trusts come in almost infinite forms and are in almost all cases more complex than in this example. In many cases the identity of the trustee is not completely separate from the beneficiaries – the trustee may also be a beneficiary. In some cases the settlor continues to have a role, perhaps as a trustee or as a beneficiary or as someone with a power to make some decisions, for instance the power to appoint or remove a trustee or beneficiary. Despite the complexity and flexibility evident in trusts today, it is important to remember this basic starting point in what characterises a trust. Below we discuss different types of trust, all of which are built upon this basic concept of the trust.