The Might of the Trustee: Powers of Trustees

Hi there! Last blog we discussed what a trustee is and how they are appointed. This week we move on to the good stuff - the trustee's power!

If we think back to our previous blog: "A trustee is the person that has control of administering the property in a trust. The trustee must administer the property for the benefit of the trust's beneficiaries."

This indicates two main things that a trustee does:

(1)        manage the trust property (for the beneficiaries' benefit); and

(2)        ensure that beneficiaries receive their benefit.

A trustee's exact powers are determined by the trust document and the relevant state Trustees statute. Most statutory powers of trustees are subject to the trust deed stating otherwise (except for in Queensland) - so if the trust deed indicates powers that are different to those provided in the statute, the trustee should act in accordance with the trust deed. In practice though, trust deeds tend to supplement powers conferred by the statutory rules. An exercise of power outside the trustee's powers will be void.

Powers held by all trustees

All trustees have the power to manage trust assets. This may include the sale and purchase of trust property and making investments. The trustee must decide whether to use its power to manage assets on a case-by-case basis and must only consider relevant factors when deciding to exercise any power. The trustee must review its management of the trust at least annually; and usually more frequently for complex or large-value trusts.

The trust statutes give trustees investment powers - they are able to invest trust funds in any form of investment and vary an investment at any time. This power stands unless altered by the trust deed. Allawdocs trust deeds provide the trustee with powers broad enough to satisfy banks and other institutions when engaging in investment activities.

It is important that a Trustee advances the requisite duty of care, skill and diligence when using its investment powers. Further, in accordance with the Trustee statues and trust deed, when making investment decisions the Trustee must have regard to:

• the purpose of the trust and the beneficiaries' circumstances;
• whether it is advantageous to diversify trust investments;
• the nature and risk of existing trust investments;
• the need to maintain the real value of trust assets;
• the risk of loss or depreciation of trust assets;
• the potential for investment appreciation;
• the likely time and amount of any return on investment;
• the duration of the proposed investment;
• the probable duration of the trust;
• the liquidity and marketability of the proposed investment during, and on the determination of, the term of the proposed investment;
• the total value of the trust;
• the effect of the proposed investment on the trust's tax liability; and
• the costs associated with making the proposed investment.

We will undertake an extensive review of investment powers and how they are carried out in our coming Money Matters series. Stay tuned!

A trustee's distributive powers

Most family (and other discretionary) trust documents give the trustee the power to distribute income and capital among the beneficiaries. In exercising (or even, in not exercising) this power, the trustee must:

• at least consider exercising the power;

• inform itself of all matters relevant to the making of the decision to exercise (or not exercise) the power; and

• act in good faith, responsibly and reasonably.

Watch this space for our coming blog on the discretionary powers of trustees of family trusts!

In the case of unit trusts, beneficiaries' distribution entitlements are usually proportionate to their unit holding.

Be careful!

With mighty power comes mighty responsibility. In exercising its powers and discretion, a trustee has various duties and obligations, including:

• a duty to manage the trust for the benefit of the beneficiaries (which, where there is more than one beneficiary, can require a balancing of different beneficiaries' interests); and

• a duty of care and standard of conduct in exercising its discretion.

Trustees must be careful to comply with the duties and obligations that come with their role. Next time, The Might of the Trustee will focus specifically on discretionary powers of family trust trustees, then we're off to tackle the duties of trustees. We look forward to seeing you then!

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