Trusts Bill

I appreciate the solid contributions that have been racked up in this debate so far on this impressive legislation, and I just want to perhaps take a moment of the committee’s time just to add my five cents’ worth on this important part, which covers the very essential part of trustees’ powers and indemnities. There are general powers of the trustee, foremost amongst which is the power of trustees or a trustee to invest the trust property. That is important. That’s what a lot of people have a trust for, as a protection for property, but also as a means to invest in property, to generate income, to generate a return which is for the benefit of the beneficiaries.

Clause 55 lays out the matters which a trustee can consider in exercising that power to invest. They are, as you would expect, to look at the objectives of the trust, the nature of existing trust investments, and the desirability of making the particular investments. All along, trustees are expected to exercise the duty of prudence. That is one of the principal constraints, if you like, on a trustee. Trustees must act prudently in relation to trust property, and that also is laid out in the legislation as well.

There are specific provisions for trustees in relation to trusts that have as beneficiaries child beneficiaries, not only for how income is applied in respect of that child beneficiary but whether or not to apply capital in relation to that child beneficiary, and, if applying capital, whether or not conditions could be imposed in relation to the use of that capital for the benefit of that child beneficiary. So, again, all of these are very important powers laid out in the bill.

There is also provision for trustees to appoint others to exercise particular powers or functions, and you would expect that. There is a growing expectation, or, in fact, not just an expectation but a requirement that when professionals are acting as trustees, they conduct themselves in accordance with their professional standards and the expectations around their professional standards, and that also is laid out in the bill as well. It is possible for trustees to delegate their powers by way of power of attorney if they are, for example, prone to moving in and out of the country or are otherwise not being well disposed to exercise their powers, and there is a process for notifying other trustees in relation to any power of attorney that allows that delegation and when any power of attorney is indeed in place or enforced. Again, all those things are laid out, along with the ability to appoint special trust advisers, because you want trusts and trustees to be able to take good advice and to take specialist advice when that is needed, depending on the nature of the trust, and often that entails remuneration as well, which, again, is applied for.

Then there is provision for indemnities for trustees. There are some things that trustees cannot be indemnified for—gross negligence, wilful negligence, and dishonest conduct—but trustees acting in good faith and properly attempting to discharge their responsibilities can be the benefit of appropriate indemnities, and that, again, is also laid out in Part 4 of the bill.

Thank you, Mr Chair. I’ll pick up, really, where Minister Andrew Little left off, with a brief contribution on the subject of trustees’ indemnities. I’ve picked out this particular provision within the part because it seems a good example of the legislation going to some effort to spell out with clarity exactly the extent of the trustee’s powers, in this case, and the indemnities, indeed, that a trustee can enjoy.

The starting point, I suppose, is to really consider that it is a significant power that a trustee has. Indeed, it’s a fiduciary duty. The relationship of the trustee is one where he or she owes to the beneficiaries of the trust a level of responsibility that’s reflected in the fact that there’s a special duty and a considerable power that a trustee has as one who, of course, by very definition, owns property legally and can dispose of it and do certain things with it, but it’s for the benefit of others. It is held in trust, in that ordinary, natural sense of that word, as well as in the technical, legal sense, as well.

So the starting point under clause 77, then, is appropriate that it be—and I quote—“(1) A trustee is personally liable for an expense or a liability incurred by the trustee when acting as a trustee.” The personal liability being appropriate specifically because it is in the person’s name—the legal person or the natural person, as the case may be—that the property is held for the benefit of the trust. The qualification comes in the next subclause—that is, that the trustee, when acting reasonably, is entitled to certain protections, or certain indemnities, indeed. The Minister has alluded to that, saying that a trustee acting in a way that’s reasonable and in accordance with their powers—particularly as a professional, be it a lawyer, an accountant, or another—is entitled to that protection, and it’s a matter of good policy that we do wish to encourage people to take on these responsibilities for the benefit of their clients and society in general without fear of a penalty that would be unreasonable, provided, as the Minister has said, that such a person is not being dishonest, is not acting in bad faith, and so on.

The standard as expressed is reasonability, or in terms of needing to be reasonable, because the situations might differ. So it’s impossible, or, indeed, certainly imprudent, to try to be more prescriptive in that, and the subjective standard is appropriate because, as often is the case, the law does wish to regard a situation as requiring some sort of ordinary standard that the reasonable person might expect to be applied.

Finally, I’ll just note that in relation to that particular clause which I’m taking by way of example, the section doesn’t limit indemnity available at common law or in equity. So, in other words, the interaction of the statute is such that those protections that a trustee might already enjoy at the common law—that is, the development of the jurisprudence, the understanding, and the rules, so to speak, over the years—will continue to be applied for the benefit of the trustee, and also, as I mentioned, the equity. So the fairness, essentially, rules, the doctrine that allows a person to appeal, essentially, to the notion of acting in good conscience and not being penalised for that. So with that, I will leave my contribution on this particular part, and I look forward to the continuation of the debate by the Minister and perhaps others.

The question was put that the amendments set out on Supplementary Order Paper 255 in the name of the Hon Andrew Little to Part 4 be agreed to.

Amendments agreed to.

Part 4 as amended agreed to.

Part 5 Appointment and discharge of trustees