Tuesday, February 7, 2023

Holistic Estate Planning for the New Year(‘s Day)** - Trustee duties and powers under discretionary trusts


The decision of Mantovani v Vanta Pty Ltd (No 2) related primarily to a lost trust deed, an issue explored in previous View posts.

Helpfully however, the decision also sets out a summary of the key duties owed by a trustee, noting that the office of trustee carries with it a number of strict obligations and duties, many of which are fiduciary in nature.

Fiduciary duties are generally seen as the most onerous of all legal duties and where they apply they require a person to act solely in another party's interests.

The case specifically confirms that the duties of a trustee include to:
  1. become thoroughly acquainted with the terms of the trust and all documents relating to or affecting the trust property;
  2. adhere rigidly to the terms of the trust and conform to and carry out the wishes of the settlor as expressed in the deed of trust; which is said to be ‘perhaps the most important duty’ of a trustee;
  3. keep and render proper accounts and report to beneficiaries or to a court regarding the administration of the trust;
  4. act fairly and impartially between beneficiaries;
  5. administer the trust property in a way so as to avoid benefiting one beneficiary or set of beneficiaries at the expense of another;
  6. make an application for judicial advice where the trustee requires advice or direction in relation to the management or administration of trust property or the interpretation of a trust instrument.
In relation to the last mentioned duty (ie to seek advice), it should be noted that a failure to seek advice has been held to be at the trustee’s 'own peril'. This is because any departure from the terms of the trust and any negligence in the performance of the duties of the trust will amount to a breach of trust.

Similarly, any acts in contravention of the duties imposed on the trustee by the trust or in excess of its powers will also be a breach of trust.

The ability of a court to review, and potentially unwind, a decision of a trustee, including for a breach of fiduciary duties, is in many respects predicated on the trust adviser's mantra profiled often in this journal, namely: 'read the deed'.

The issues in this regard can be particularly critical in relation to discretionary trusts where, at least in theory, there are few limitations placed on a trustee concerning most key aspects of the administration of the trust.

In a sentence, the rule the courts appear to apply is that a trustee's decision cannot be reviewed unless, on the material before the trustee, it is one that no reasonable trustee could have made.

What this rule means in any particular factual matrix can however be somewhat nuanced – reinforcing the value that advisers who adopt a holistic approach to estate planning can add in this space; pending ChatGPT taking over.

To learn more about holistic estate planning in 2023 – and specifically the following topics, join View’s next webinar (see: https://viewlegal.com.au/product/webinar-estate-planning-2023/):
  • the key estate planning related court decisions over the last 12 months
  • taxation and stamp duty changes impacting on estate planning
  • the impact of key legislation changes
  • latest examples of the attitude of the Australian Taxation Office towards various estate planning strategies
  • insights into the latest bespoke planning opportunities we have sourced from the last 12 months
** For the trainspotters, the go to song for new year references is riffed today, namely U2 and ‘New Year’s Day’.

View here:
 

PPS – the image today is around the 12th year in a row of the image being taken with the same 4 kids in the exact same location.

PPS ... according to ChatGPT:

A trustee is a person or entity that holds and manages assets for the benefit of another party, known as the beneficiary.

Trustees have a legal duty to act in the best interest of the beneficiary and to manage the trust assets responsibly.

Some of the specific duties of a trustee include:
  • Investing and managing trust assets in a prudent manner
  • Keeping accurate records and accounting for trust transactions
  • Providing regular reports to the beneficiary
  • Following the terms of the trust document
  • Avoiding conflicts of interest
  • Acting honestly and in good faith
Trustees can be held liable for any losses to the trust assets resulting from their failure to fulfill their duties.