NEW ZEALAND Law and Practice Contributed by: Violet Yu, Jonathon Russell and Sandy Chen, Cone Marshall Limited
6. Roles and Responsibilities of Fiduciaries 6.1 Prevalence of Corporate Fiduciaries Corporate fiduciaries, such as trustee companies established by law firms or accounting practices, are widely used as trustees. The involvement of profes - sionals is often sought due to their expertise, impar - tiality and ability to manage high-value or blended family trusts effectively. Settlors often engage corporate fiduciaries in order to ensure proper administration and compliance obliga - tions are adhered to, and to minimise conflict in the family, through the involvement of impartial voices. The default duties contained in the Trusts Act 2019, in particular the general duty of care and duty to invest prudently, impose a higher standard of conduct on corporate and professional fiduciaries (eg, lawyers, accountants), although these duties could be modified in the terms of the trust deed. • Section 29 provides that trustees must exercise reasonable care and skill in trust administration, having regard to their special knowledge or experi - ence. • Section 30 requires trustees to invest trust prop - erty with the care and skill of a prudent business person. The elevated duties imposed on professionals reflects their remuneration and expertise compared to lay trustees. 6.2 Fiduciary Liabilities The concept of “piercing the veil” does not apply to trusts, as they are not legal entities with separate per - sonality. Instead, trustees are personally liable for trust debts, including tax liabilities (which are particularly enforceable against trustees, even corporate ones) and this exposure can be exacerbated by breaches of fiduciary or statutory duties under the Trusts Act 2019. However, trustees can seek reimbursement from trust assets for properly incurred liabilities; but this right to indemnity is lost if expenses are not reasonable
or have arisen due to breaches in fiduciary/statutory duties. Breaches (eg, mismanaging funds or failing to file taxes) can lead to personal liability for tax debts, penalties and beneficiary claims, with no indemnity if improperly incurred. In practice, trustees also commonly seek to include limitation of liability clauses in contractual arrange - ments entered into on behalf of the trust. Such clauses typically operate to limit the trustee’s personal liability to third parties to the assets of the trust fund from time to time, so that the trustee’s own personal assets are not exposed. Where such clauses are accepted by counterparties, they provide a meaningful practical protection that supplements the trustee’s statutory right of indemnity from trust assets. However, under Sections 40–41 of the Trusts Act 2019, such protec - tions cannot extend to losses caused by a trustee’s dishonesty, wilful misconduct or gross negligence, which remain a personal liability of the trustee regard - less of any contractual or trust deed limitation. 6.3 Fiduciary Regulation The Trusts Act 2019 sets out a default duty under Sec - tion 30 for trustees to invest prudently, requiring the care and skill of a prudent business person manag - ing the affairs of others. Professional trustees, with specialised expertise, are held to a higher standard. Unlike mandatory duties – such as acting for the ben - efit of the beneficiaries (Section 26) or exercising pow - ers properly (Section 27) – this duty can be modified by the trust deed. Section 59 of the Trusts Act guides trustees to con - sider factors like diversification, risk, capital growth, income return and the trust’s objectives, in order to balance risk and reward. If a breach occurs, Section 128 ensures courts review the trustee’s investment strategy holistically, protecting strategic decisions made in good faith. The duty to invest prudently interplays with others, including the following.
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