FiduciaryDuties Archives

Trustee decision-making

April 28, 2026

Estate Planning, Trust Law, Trustee Duties, Wealth & Asset Planning, Wills & Succession

How much weight should settlors’ directions carry?

It is estimated that there are between 300,000 to 500,000 trusts in New Zealand, and it is often said that we have one of the highest numbers of trusts per capita in the world. Although the reasons for having a trust are not quite as compelling as they used to be, trusts remain a large part of the legal and asset planning landscape. Trusts arise in many contexts including property ownership, investments, relationship property, insolvency and estates – to name a few.

We explore some of the interplay between settlors and trustees of a trust, particularly in relation to directions given by the settlors to trustees. It is very common for settlors to provide a form of guidance to trustees as to how the trust should be administered. However, must trustees follow the settlor’s directions? Should they follow those directions? What effect, if any, do a settlor’s wishes have on the trustees’ administration of the trust?

Operation of a trust

It is useful to begin with a reminder of the core mechanics of a trust. When assets are settled on a trust, they are transferred from the ownership of the settlors to the trustees. The trustees manage those assets for the benefit of the trust beneficiaries, and in accordance with the purpose and terms of the trust.

A settlor can also act as a trustee, but trustees must exercise their powers independently and in accordance with their duties to the beneficiaries. This is often achieved by having an independent trustee. The role of an independent trustee is becoming increasingly important and a lack of separation between the settlors, trustees and beneficiaries may undermine the trust’s purpose and leave it vulnerable to challenge.

It is for this reason that a settlor may choose to give written directions to the trustees about how the trust’s assets should be managed, how various beneficiaries should be treated, how the assets should be distributed and when that distribution should happen.

These directions take various forms but are often referred to as a ‘letter of wishes’ or a ‘memorandum of guidance.’ They are typically separate from the trust deed and kept with the core documents of the trust. Settlors can update these documents over time and they are often referred to or repeated in the settlor’s will. It is common for these directions to take effect on the settlor’s death or incapacity.

Effect of settlor guidance in trustee decisions

Guidance of this sort is not legally binding on trustees, but it is still an important consideration. As discussed above, the role of a trustee is to administer the trust in the best interests of the beneficiaries. A trustee is not an agent – nor puppet – of the settlor.

Trustees must exercise their own independent judgement when making decisions about the administration of the trust. They must consider all relevant factors. A settlor’s expressed wishes are one such factor, provided those wishes are consistent with the purposes and terms of the trust.

There is some authority in case law to suggest that this guidance is a mandatory consideration for trustees,^[1] but it is clear that – as a minimum – trustees should read and understand the document. The Court of Appeal stated in the Chambers case, ‘It is necessary for trustees to read and understand a memorandum of guidance to discern the settlor’s wishes, and then with those wishes in mind make an independent assessment of the appropriate course of action, taking into account not just the memoranda, but all relevant factors.’

Independent decision-making

Trustees should take particular care when exercising powers in a way that departs from the settlor’s expressed wishes, as these decisions are more likely to be challenged by beneficiaries.

Although trustees are not ordinarily required to give reasons for their decisions, if that reason is challenged, they may be required to show that their decision was properly reached. Where a beneficiary can convince a court that there is a genuine and substantial dispute about whether a decision was reasonably open to the trustees, the court may scrutinise the decision-making process.

In those circumstances, trustees will need to show that the decision was within their powers, was made for a proper purpose and was rational, that it took into account relevant considerations and ignored irrelevant ones, and that the decision was reasonably open to the trustees in the circumstances. This list is not exhaustive but illustrates that the exercise of trustee powers can be complex.

Other options for trustees

Where trustees propose to make a decision that departs significantly from the wishes of the settlor – or involves a particularly significant or ‘momentous’ decision regarding trust assets or beneficiaries – the trustees should consider applying to the High Court for a ‘blessing order.’ This type of application takes advantage of the High Court’s supervisory role in relation to trusts and asks the court to ensure that the trustees have properly formed their view and that the proposed decision is one that is reasonably open to them. If granted, the order can provide trustees with protection from later challenge.

Difficulties can arise where the settlor’s later wishes differ from the context and purpose for which the trust was originally established. Over time, a settlor’s intentions may evolve; guidance provided years after the establishment of the trust may sit uneasily with the trust’s original objectives. In such cases, trustees may conclude that the later expression of wishes carries less weight than the underlying purposes of the trust, given the trustees’ duty to administer the trust in accordance with those purposes.

If faced with this situation it would be worth discussing with us whether there are powers to vary the trust and to add/remove beneficiaries, and whether restructuring the trust through these means may achieve a more secure outcome.

While it is common for settlors to leave written guidance for trustees, such documents are not binding but instead form part of the broader context that trustees should consider when making decisions. Trustees must ultimately exercise their own independent judgement. They should neither follow a settlor’s wishes blindly nor disregard them entirely.

Where significant decisions are required and uncertainty exists, it would be prudent to take legal advice and consider all available options including whether to seek the guidance of the High Court through an application for a blessing order.

^[1] Chambers v S R Hamilton Corporate Trustee Ltd [2017] NZCA 131.

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2025. Editor: Adrienne Olsen. E-mail: [email protected] Ph: 029 286 3650

Trustees taking on liabilities of the trust

February 26, 2026

Litigation & Dispute Resolution, Risk Management, Trust Law, Trustee Duties, Wealth & Asset Planning

Can they be held personally responsible?

When someone acts as a trustee of a family trust, they often take on liabilities associated with the trust. Those liabilities generally include obligations to the trust’s lender (such as a bank) or other creditors.

While that does not usually cause issues for the trustee, there can be cases where a trustee is left personally responsible for a trust debt that they are not then able to recover from the trust. It’s a daunting prospect for both professional and non-professional trustees.

How trustees contract

It is a common misconception that when signing documents in your capacity as a trustee, your risk is limited to the assets of the trust. Unfortunately, this is not the case. A contract that is enforceable against a trustee can be enforced against the trustees (or any one of them) personally.

The reason is that a trust is not a separate legal entity or ‘person’ in the same way as a company or incorporated society. The trust itself cannot enter into a contract or be registered on a property title; only the individual trustees’ names can be listed.

It is important, therefore, for trustees to seek advice on the form of any contract that they are entering into in their capacity as a trustee. In some situations, however, clauses can be negotiated that limit the obligations of non-beneficiary trustees to the assets of the trust at the time in question (whatever those may be). This is an important protection for non-beneficiary trustees. These clauses will not usually be extended to include trustees who are also beneficiaries.

It is also important for the trustee to have a clear understanding of the trust’s assets and whether the trust is in a position to meet its obligations under the terms of the contract being entered into by the trustees. Taking on a loan that the trust would be unable to service, for example, would not be a wise decision for a trustee to make.

How can trustees recover their losses?

Often, however, the fact that individual trustees are liable to the trust’s creditors does not cause individual trustees significant issues. Trustees have a general right of indemnity from the trust funds; if they must pay a debt on behalf of the trust, the trust’s funds must be used to reimburse the trustee.

What happens if the trust has no assets

In a recent decision of the High Court of Australia,^[1] a former trustee found himself in the unenviable position of being found liable to a creditor of the trust for payment of more than A$3 million that he was unable to then recover from the trust.

A creditor of the trust had begun court proceedings against the former trustee in 2006 relating to unpaid sums on a share purchase.

In February 2007, the former trustee resigned as a trustee of the trust and was replaced by a trustee company, whose director was the brother of the Default Beneficary and Appointor of the trust.

Nine years later (and after a series of court proceedings in the meantime between the creditor and the trustees and others), the court entered judgment against the former trustee in favour of the creditor for A$3.4 million.

In the ordinary course, the former trustee would have then demanded that sum from the trust by way of indemnity. However, the trust did not have sufficient assets to provide indemnity. The court found that the current trustees had deliberately depleted the trust’s assets to avoid any potential liability to either the creditor or the former trustee.

The current trustees of the (perhaps aptly named) Sly Fox Family Trust were found to have dishonestly and fraudulently stripped assets out of the trust by transferring its assets to various family members and companies controlled by family members of the Default Beneficiary and Appointor.

In the court proceedings that followed, it was unsuccessfully argued that the current trustees owed an obligation to the former trustee to ensure that the trust retained sufficient assets to meet any financial obligations that it might owe to the former trustee under the right of indemnity. The court, however, did not agree that the current trustees owed such an obligation to the former trustee.

Two appeals followed; the decisions of both the Court of Appeal of the Supreme Court of New South Wales and the High Court (which is effectively the Australian equivalent of our Supreme Court) were split. In the Court of Appeal the judges were split 2/1, and they were split 3/2 in the High Court. This had significant repercussions for both the creditor of the trust and the former trustee, neither of whom were successful.

What can trustees do?

Trusteeships come with risks. When taking on obligations to third parties, trustees must carefully consider the financial position of the trust, and any risks associated with the people involved.

They should also consider the terms of the contracts they are entering into and whether any clauses can/should be included to limit their liability as non-beneficiary trustees.

Indemnities are only as valuable as the assets of the trust at the time. Therefore, trustees should not rely on indemnities alone if there are other options available to limit their risk

^[1] Naaman v Jaken Properties Australia Pty Limited [2025] HCA 1.

DISCLAIMER: All the information published in Trust eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Trust eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2026. Editor: Adrienne Olsen. E-mail: [email protected] Ph: 029 286 3650

📢 Supreme Court Decision: Fiduciary Duties and Parent-Child Relationships

January 13, 2025

Kerry Bowler

House, Kids, Media, News, Online, Property, Relationships

The Supreme Court recently issued its much-anticipated ruling in A, B and C v D and E Limited as Trustees of the Z Trust known as the Alphabet case. It concerns the extent of fiduciary duties owed by a parent to an adult child. ⚖️

The case involves a father, who transferred most of his assets to a trust during his lifetime, leaving his adult children without any entitlement to those assets. The children argued that due to past abuse they suffered at their father’s hands, including physical, emotional abuse and sexual abuse, their father owed them fiduciary duties that extended into adulthood. They believed his actions in transferring assets breached those duties, and the assets should revert to his estate to satisfy their Family Protection Act claims to be provided for from his estate.

While the Court agreed that fiduciary duties exist between a parent and minor child, it ruled that those duties generally end once the child reaches adulthood or the caregiving responsibility ends. The Court rejected the notion that such duties continued into adulthood, despite the children’s vulnerability due to the abuse they suffered during childhood. Importantly, the Court noted that imposing fiduciary duties in this case would create legal uncertainty and “reverse engineer” a remedy for past wrongdoing.

The Court also ruled against treating the trust assets as part of the father’s estate. However, it acknowledged the need for legal reform in this area and pointed to the Law Commission’s 2022 proposal to allow courts to unwind property transactions that intentionally defeat claims under succession law.

While the Court was sympathetic to the appellants, it ultimately found that the law could not support their claim in this case. The ruling highlights the need for further reform in this area of law, which the Law Commission’s proposals may address in the future.