Importance of an Independent Trustee

Although there is no legal requirement for a New Zealand trust to have an independent trustee, it is a good idea to consider one for your trust. An independent trustee is an impartial trustee who does not benefit from the trust’s assets. It can be either a family friend, or a person from professional field, such as an accountant or a lawyer.

Unlike trustees who have an interest in the trust, an independent trustee is more likely to be fair and equitable in making any decisions for the trust, due to lack of personal gain or personal benefit from such a decision.

The benefits of having an independent trustee include, but are not limited to, the following:

1. Transparency – Having an extra trustee overseeing the administration of the trust may prevent trustees with vested interest in the trust to continue to treat the trust assets as their own personal assets. It is crucial to ensure that the trust assets are being managed as such, rather than personal assets, to mitigate any “sham trust” arguments. Having an independent trustee means that if in the future the Trust is ever challenged, you will be better able to show that the Trust was operating as a trust (as opposed to you treating the assets of the Trust as if they were your personal assets);
2. Efficient management of the Trust - Certain duties are imposed upon trustees by law to manage and administer the trust efficiently, in accordance with the terms of the trust deed, and for the benefit of the beneficiaries. These duties include proper record keeping (trustee decisions, written contracts, accounting records and financial statements, trustee change documents, etc.) and ensuring that the beneficiaries of the trust are aware of their entitlement and have details of the trustees of the trust;
3. Impartiality - In certain situations the trustees that are closely involved with the trust have an emotional connection to the asset held in the trust. For example a trustee decision to invest the trust assets in a business of their personal interest, rather than in a profitable business to generate income for all of the beneficiaries. This personal connection may sometime cloud judgment of the trustee with vested interest in the trust and make decisions that are not for the benefit of all of the beneficiaries of the trust. On the other hand, an independent trustee does not have such an emotional investment in the trust asset and can guide other trustees to consider the needs of all of the trust beneficiaries.

Considering all of the above, it is important to appoint an independent trustee that you can trust and rely on to act in the best interest of your trust and the beneficiaries, who knows the obligations of a trustee imposed on him or herself and, most importantly, be mindful of recent legislation and requirements for the trusts. All of the above will ensure that your trust structure is robust and is well-managed in the protection of your assets placed in your trust.