Understanding a trust deed is a duty of trustees. It can also be important for professional advisers or other parties that may interact with a trust and that have access to the deed. The trust deed sets out all the terms of the trust and acts as guidance on how the trust should be managed. It grants powers and discretions to the trustees. In essence, a trust deed sets out the rules of a trust.
What’s in a trust deed?
Each trust is different and each trust deed is different to reflect the different circumstances surrounding a trust. Trust deeds should be tailored to meet the specific purpose of the trust, taking into account all parties to the trust and the intended purpose of the trust.
While trust deeds vary, the following are some of the main provisions that are typically found in trust deeds:
The name and address of the person who is settling (creating) the trust.
The trustee(s) will be identified in the trust deed. The trustee is the person or entity that manages and administers a trust.
Trusts cannot exist indefinitely. The perpetuity period of the trust will be described in the trust deed. It is either specified as an end date or as a period of time from when the trust was created. The maximum perpetuity period for a non-charitable New Zealand trust is currently 80 years.
It is important to establish the perpetuity period of a trust as the trustee should be aware of when the trust must come to an end and a final distribution be made. Also, the perpetuity is crucial when considering the resettlement of a New Zealand trust upon another trust.
Proper Law of the Trust
A deed may state the name of the country whose laws are to govern the trust and whether or not the proper law of the trust may be changed.
Powers of the Trustee
A trust deed will dictate the powers that a trustee has and whether they are discretionary powers or not. Such powers include the power to pay income and capital, powers relating to investment, resettlement, delegation and distributions.
Powers of Appointment
A trust deed may specify who has power to appoint or remove trustees and beneficiaries. Where these powers are omitted from a deed, the respective legislation governing the trust will apply.
Revocation of a Trust
Where a trust is revocable, the trust deed may set out the procedure for revoking the trust and under what circumstances the trust may or may not be revoked.
Where there is more than one trustee, the trust deed should set out the decision making process between the trustees and whether decisions need to be unanimous or by majority. If omitted from the deed, decisions must be unanimous.
Indemnity of Trustees
Before accepting an appointment as trustee, the incoming trustee should review the trust deed to establish whether it includes an indemnity in favour of the trustees. If an indemnity is absent from the deed, the trustees may wish to request one before accepting the appointment.
It is crucial for trustees to understand a trust deed if they are to correctly manage the trust on behalf of the settlor and fulfil the purpose of the trust. Furthermore, careful attention should be paid to the preparation of a trust deed to ensure that that it is tailored in accordance with the circumstances surrounding the trust. Never assume that something is included in a trust deed. If you don’t understand a deed, seek professional advice in understanding a deed and in particular, preparation of a trust deed