4 Benefits for having an Independent Trustee.

Should you have an Independent Trustee? In short, Yes.

We have recently seen a trend – especially from banks – insisting that they cannot accept the trust structure if there is no independent trustee. The result is also the same if there is a trustee company, but all of the directors are beneficiaries of the trust as well.

An independent trustee is a trustee who does not benefit from the assets of the trust. For family trusts where there are personal trustees, this might be one trustee out of three or a separate trustee company that is not a beneficiary under the terms of the trust. With a trustee company, you need to take care as often there is a class of beneficiaries in a trust which includes companies where a beneficiary has a more than 20% ownership or control stake.

The starting point is that there is no legal requirement to have an independent trustee in New Zealand. However, here are four benefits to having an independent trustee:

  1. An independent trustee brings an impartial view and a wealth of experience into the trust and the relationship between the beneficiaries. This is especially important where family relationships have become strained and the trustees who are often the husband and wife who formed the trust can no longer act in an impartial manner.
  2. A lack of independence in a trust structure can often cause difficulties in relationship property or creditor claims as was pointed out in the Clayton case. In that case, property held in the trust was available to settle a relationship property claim when one party was found to hold too many powers. An independent trustee can reduce the risk in this area.
  3. The record-keeping of the trust is often greatly improved with an independent trustee. Under the Trusts Act 2019, it is a legal requirement that all trustees have access to all trust documents which in our experience has been an issue in the past for a lot of trusts where there is no independent trustee.
  4. In respect of trustee companies even though the legal position is that the trustee company is legally an independent trustee, third parties are often contending there is no independence in the structure where all the directors are also beneficiaries of the trust. If this happens, we recommend an independent director is appointed and the company adopt a constitution that requires director decisions to be unanimous.

If you would like to discuss this further please contact us  either by calling +64 9 30117777 or by filling out the contact form below