The choice of trustees remains one of the most crucial decisions that a settlor must make when setting up a trust. There are a number of options available to the settlor.
Most commonly, a settlor will choose an individual who is familiar with the settlor and the settlor’s family to be a trustee. This individual will typically be settlor’s adult family members or settlor himself/herself. The benefit is that the trustee should be able to identify with and carry out the settlor’s wishes. This should result in better decision-making. Ordinarily such an individual acting as trustee will not charge and there is some saving in terms of costs.
However, in some instances, some trustees may get so personally involved in the trust affairs that their judgment is impaired.
Independent “third” persons
A settlor may wish to choose an independent or “third” person to be a trustee because he or she has some familiarity with the settlor’s wishes and family but are not beneficiaries of the trust. This type of independent/third person would typically be the settlor’s adult family members or close family friends. The lack of self interest should lead to impartiality and if well chosen this should enhance decision-making.
As non-professional trustees are not financially rewarded for their efforts and the duties of a trustee can be onerous, not many family members and family friends would be willing to undertake the duties of being a trustee.
Individual professional trustees
Lawyers and accountants are frequently appointed as third trustees. The perceived benefit is that they are expected to have the necessary skills and knowledge to ensure that appropriate decisions are made, and trust records and accounts are properly documented. Their independence and expertise should result in fair and impartial advice to other co-trustees. Professional trustees are judged by a higher standard at law than their layperson counterparts.
On the other hand, using professional trustees could add costs to the administration of the trust both in terms of the trustee’s participation in decision-making and the level of record keeping.
Private trustee companies
Private trustee companies have proven increasingly popular as they provide a far more convenient and flexible approach to trust administration. Typically a trustee company is established for a particular trust, or it acts as trustee for two or three trusts within the same grouping. The trustee company has a nominal share capital. The settlors or next of kin of the settlors are usually directors of the trustee company. This structure has the advantage of convenience.
Use of a corporate structure has the benefits of facilitating succession on the death or retirement of trustees, such as avoiding the need to register changes of ownership of assets held by the outgoing trustees. However, there will be registration and nominal maintenance costs for operating such a company.
Statutory trustee corporations
There are four trustee corporations in New Zealand established by statutes to undertake personal trust work and the administration of estates. One advantage of using these organisations as trustee is that they have significant financial backing and are therefore unlikely to be wound up or become insolvent. Usually trustee corporations have good processes and maintain good records, but they charge a high premium for their services.
One common complaint to trust corporations is of their staff turnover which has resulted in inconsistent decision-makings. They are also criticised for inflexible procedures and bureaucracy.
It is important to select the right type of trustee at the start. In finding the most suitable arrangements, settlors should give careful considerations to their unique financial and family circumstances.
Please note that the above information is intended to provide general information only. The contents contained in this article do not constitute legal advice and should not be relied on as such. For specialist advice please contact our professional team at Forest Harrison.