Janet Xuccoa
June 5, 2024

Trusts dominate the wealth landscape.  They’ve been used for eons and successive generation to hold and protect wealth.  Given the humble trust is such a popular vehicle to hold assets and produce income,  it’s no wonder the IRD have turned their attention to reviewing trusts to establish if they’re operating as they should be.  Unfortunately, the Revenue have found many trusts are non-compliant, with settlors adopting a self-centric approach.  Trustees have also been found remiss in not meeting their duties set down under the Trusts Act 2019 (Act), Income Tax Act and the Tax Administration Act.

IRD now annually require details to be disclosed to them about Trusts.  As such, it’s no longer feasible to ignore the law.  This aside, given most trusts hold significant assets for protection reasons, its donkey dumb not to administer a trust correctly because ill managed trusts are unlikely to act as shields against claims.

To help you and your trust, we’ve compiled a list of matters settlors and trustees should consider.  Use this list to determine if you need to talk to us about getting you own trust affairs in order.  Our help could make the difference in your Trust being compliant and withstanding scrutiny or failing to protect all the assets and wealth you’ve worked so hard for.

Check the matters below to see if you need to have your Trust affairs reviewed:

  1. Does the Trust Deed reflect the current law and suit the circumstances the trustees and beneficiaries face or is it outdated? A review of the Deed and a discussion with us can help trustees decide if work on the deed of trust is required.
  2. Have financial statements been prepared for the Trust?  Under the Act, Trustees owe a statutory duty to keep appropriate accounting records that identify the assets, liabilities, income, and expenses of the trust. This duty is further substantiated by the IRD Disclosure Rules now imposed upon trustees under the Tax Administration Act 1994.  Even where a trust is exempt from satisfying this duty, trustees should still as a bare minimum prepare an annual balance sheet and beneficiary current accounts.  By doing so, they can satisfy other legal duties they owe such as being able to account to the beneficiaries for the trusts imposed upon them.
  3. Are Trustees holding annual trustee meetings?  If they haven’t, this frequently indicates they’ve failed to meet one of the all-important duties imposed upon them under the Act.  This is the duty to actively and regularly consider whether they should be exercising one or more of their powers. This duty is not new, but the legislation has now placed it in black and white. In general, trustees would refer to this duty along with a host of other matters at their annual trustee meeting.  The annual trustee meetings we hold for trusts cover at their lowest level 32 succinct points.  These points are derived from the Act and from court cases.  Sometimes trustees attempt to hold their own meetings but fail to properly document what was discussed or if they’ve prepared a document, its wholly inadequate.
  4. Are Settlors and Trustees giving appropriate and timely consideration to beneficiaries or are they acting as though trust assets belong to them personally, doing what they wish? We call this a settlor-centric approach. Under the Act, trustee responsibilities have been enshrined and are explicit, with trustees’ duties being made clear.  Whilst this makes satisfying duties easier, the role of trustee has undoubtedly become more onerous as specific matters must be attended to.  A fundamental duty Trustees owe is to act in the best interest of beneficiaries.  Clearly when a settlor-centric approach is adopted, trustees fail to satisfy this all-important duty.  Consequences follow from non-compliance such as Trustees opening themselves up to challenge and trusts failing, resulting in a loss of asset protection and negative tax consequences. Overall, the settlor-centric approach with trustees deciding they don’t want to comply with the Act, especially in respect of governance and administration, is a thing of the past.  Independent Trustees are likely to resign if this occurs.  Our firm has unfortunately had to take this step on a couple of occasions due to clients refusing to consider beneficiaries and allow us to attend to administrative and governance matters.
  5. Has the purpose of the Trust been determined and the strategy set? Trustees should be determining what the purpose of the trust under their watch is and how that purpose will be maintained.  Purposes and strategies come in discrete categories and can change as circumstances alter. This is one of the matters trustees should be cognisant of and discuss and document at their annual trustee meetings so that asset alignment can be checked and verified.
  6. Does a succession plan for the Trust exist as to whom is to run the trust and manage its affairs when you aren’t around. In other words, wills and memoranda of wishes need to be in place.  Once again, this is a matter to be reviewed annually.  In particular, a copy of the memorandum of wishes must be made available to other trustees so they know what a settlors wishes are with respect to trust assets when the settlor is no longer around to consult with.
  7. Is record keeping timely, appropriate and complete?  Inadequate and/or inappropriate record keeping is the hall mark of Trustees failing to honour their duties.  Prior to the introduction of the Act, trustees were under no statutory obligation to retain specific trust documents other than those necessary to satisfy their obligations as trustees. Lack of statutory guidance left trustees unclear as to what information had to be retained. Frequently, documents were either not kept by trustees or became scattered amongst solicitors, accountants and other advisers acting for the trust. Being devoid of information had implications for attending to the administration and management of the trust. Inadequate retention of trust documents also became problematic when trustees engaged in litigation.  These issues have been remedied by the Act making it clear what trust documents must be kept.  Equally crystal is the legislation imposes a statutory obligation on trustees to retain certain documents.  The Act even dictates for how long information must be kept and how documentation is to be passed on from one Trustee to another.  It’s for this reason, we as an independent trustee retain copies of documents we prepare and sign – it’s the law after all. 


The above pointers are not an exhaustive code of all the matters trustees should tick off their list  with respect to trusts under their remit.  This aside, these questions should induce trustees to consider if the trust under their ambit is being administered and managed correctly. 

As a whole, we liken trusts to insurance policies – they provide protection providing certain conditions are met such as following the Act and complying with relevant legislation.   If a set and forget approach has been adopted, it’s time to recognise the approach won’t hold any longer.  IRD annually scrutinise trusts.  Independent Trustees don’t want to be involved in trusts that are non-compliant.  Trustees shouldn’t want to engage in non-compliant behaviour either as by doing so they put the wealth of the trust, which is often significant, at risk. 

If you want to become more familiar with what your duties are and how trusts operate, read Trusts 123.  You can obtain a copy from Greenlion.  Feel free to call us too if you wish to discuss having your trust reviewed or you need to bring your trust matters up to compliant standards.

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