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In New Zealand, people commonly use trusts to protect personal property and family assets. With over 300,000 trusts in New Zealand, they are a vital part of New Zealand society and economy. However, many people still find trust law and the role of a trustee and beneficiary confusing. This article will outline:

  • what a trust is;
  • parties to a trust;
  • if someone can be both a beneficiary and a trustee;
  • trustee duties; and
  • what to know if you are both a beneficiary and trustee.

What is a Trust?

Most trust law in New Zealand comes from the Trusts Act 2019, including the definition of a trust, and how trust creation works.

Trust creation occurs when a person (known as a settlor) transfers their property to other people (known as trustees).  Consequently, trustees legally must use the trust fund (the property) for the benefit of these beneficiaries, as the beneficiaries have legal ownership of the property. Often this is through payments from the trust. Furthermore, these trusts are usually given a name.

However, a trust is not a separate entity in the way that a company is. Instead, a trust is a relationship between trustees and beneficiaries. By way of explanation, the trustees have binding duties to manage the trust property, and the beneficiaries receive benefits from the trust as managed by the trustees. 

Who Are the Parties to a Trust?

Given that trusts are a relationship between trustees and beneficiaries, it is essential to understand individuals’ roles in a trust.

Settlor

The settlor is the person who owns the property that is put into the trust. The property is no longer the settlor’s and instead belongs to the trust.

Trustees

Usually, a trust has two or more trustees. They often have a personal relationship with the settlor. As stated above, they are in charge of managing the trust property and have legal obligations to ensure that the trust property is used for the beneficiaries. An individual can be a professional trustee, but often they are a lawyer or other professional.

Beneficiaries

Beneficiaries are the people for whom the trust has been established. Trusts can be used for several purposes, including charitable purposes, education, or family members’ benefit. In the latter case, who the beneficiaries are will depend on the purposes of the trust. Often, they are the children or grandchildren of the settlor. 

Like any relationship that involves money, trusts can become challenging to maintain and disputes often arise. Therefore, a trust deed is usually written to outline and govern the rights and responsibilities of the parties involved with the trust. 

Can Someone Be Both Beneficiary and Trustee?

An individual can be both the beneficiary and trustee of a trust – so long as they are not the sole beneficiary and sole trustee at the same time. Someone being both a beneficiary and a trustee is quite a typical scenario. For example, a surviving spouse could be both trustee and beneficiary of the deceased’s family trust.

What Should I Know if I Am Both a Beneficiary and a Trustee?

Though this is common, tensions sometimes arise between a trustee’s duty and their position as a beneficiary. A trustee is legally obligated to: 

  • exercise reasonable care and skill in the circumstances;
  • act in good faith;
  • use their power with the care and skill of someone dealing with someone else’s property; and
  • not exercise their power for their own benefit as a trustee.

Given the last point, it can sometimes be challenging for individuals to juggle their duties as beneficiaries and trustees. Additionally, beneficiaries can challenge trustees if they do not think that they are exercising their trustee duties reasonably, leading to further tensions.

Therefore, if you are in this position, you must keep good records of any transactions and decisions you make. If you are challenged, you must have evidence to show that your decisions are valid. For example, if you pay yourself assets from the trust, be prepared to justify this. Additionally, never use trust assets covertly for your benefit.

Key Takeaways

In conclusion, it is possible to be both a beneficiary and a trustee of a trust in New Zealand. However, if you are in this situation, it is good to keep in mind the duties that a trustee has to a trust – mainly that a trustee cannot exercise their power for their benefit. Therefore, a trustee may face difficulties exercising their duty as a trustee if they conduct transactions for themselves. As a result, it is best to make sure excellent records are kept of any transactions that a trustee makes that benefit them, and they should be able to justify any of them. 

If you need help understanding your trust obligations, our experienced business lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

Does my trust need to have multiple trustees?

Yes, it is best for a trust to have more than one trustee to ensure transparency and the best possible governing of the trust.

What is the difference between family and discretionary trusts?

Discretionary trusts allow someone to choose who will benefit from the trust and how, while family trusts hold a family’s assets or run a family business.

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