Your trust is only as strong as its trustees
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Articles by Anna Loginova.
Key Takeaways
- A professional trustee makes it significantly harder for creditors or a former spouse to challenge a trust as a sham.
- Trusts with independent trustees are generally more defensible in relationship property disputes.
- A professional trustee ensures continuity if an individual trustee becomes incapacitated or passes away.
- Banks, lenders and legal advisers often prefer trusts that include an independent professional trustee.
- Case study: a GRA trustee spotted a leasehold apartment's ground rent set to jump ~400% and advised against buying. That apartment's value dropped significantly seven months later, once the ground rent increase became known.
Trusts remain one of the most effective tools for protecting assets, supporting family goals, and ensuring your hard-earned wealth passes to the right people in the right way. With the introduction of the Trusts Act 2019, the legal framework governing trusts has been modernised and strengthened, bringing greater clarity and certainty for those who use them well.
At the same time, the Act has raised the bar for what it means to be a trustee. Combined with ongoing obligations under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, and increasing professional indemnity costs, the responsibilities of trustees are now more demanding than ever.
This is why having an experienced professional trustee alongside you has never made more sense, bringing the expertise, diligence, and peace of mind that modern trust management requires.
What are the benefits of having a professional trustee?
While it is not mandatory to have one, there are a number of important advantages to having an independent professional trustee, including:
• Strengthening the integrity of the trust structure: An independent trustee makes the trust significantly more robust and harder for creditors or a former spouse to challenge as a sham.
• Compliance with legislation: Ensuring the trust operates in accordance with the trust deed and obligations under the Trusts Act 2019.
• Governance and proper administration: A professional trustee brings experience, independence, and oversight to trustee decisions, ensuring transactions are documented correctly and the trust remains compliant over time.
• Independent oversight: Providing an impartial perspective on trustee decisions and helping ensure decisions are made in the interests of the beneficiaries.
• Annual review of trust matters: Regular trustee meetings ensure the trust’s activities, decisions, and ongoing purpose are properly considered and documented.
• Support in complex family situations: A professional trustee can provide neutral decision-making in situations where family matters become complicated.
• Protection in relationship property situations: Trusts may be scrutinised under the Property (Relationships) Act 1976, and trusts with independent trustees are often more defensible.
• Continuity and succession: A professional trustee helps ensure continuity if an individual trustee becomes incapacitated or passes away.
• Alignment of estate planning: Helping ensure the trust structure aligns with your memorandum of wishes and your will, so assets ultimately pass according to your intentions.
• Credibility with third parties: Banks, lenders, accountants, and legal advisers often prefer dealing with trusts that include an independent professional trustee.
• Strong record-keeping and governance: Proper documentation and administration help ensure the trust can withstand scrutiny if required.
• Monitoring of trust gifting and other administrative matters: Ensuring these are addressed appropriately and in a timely manner.
• Independent decision-making: A professional trustee provides an objective perspective when considering trustee decisions.
Case Study: Protecting a client from a costly purchase
One of our clients was looking to purchase an apartment as their primary residence. When the sale and purchase agreement was presented to the GRA professional trustee for signing, it appeared straightforward and the client was keen and eager to proceed.
However, on carefully reviewing the documentation and asking further questions, the professional trustee identified a significant issue: the land on which the building sat was leasehold, with a ground rent renewal due in just six months, at an increase of nearly 400%. On that basis, the professional trustee recommended the client not proceed with the purchase.
While the client was disappointed because they had fallen in love with the apartment, they took the advice on board. Seven months later, when the client revisited the property, the impact of the ground rent increase had become clear: the value of the apartment had dropped significantly. The client was extremely grateful they had listened and that the professional trustee had prevented them from making a financial loss.
The right support makes all the difference
A well-structured trust, supported by a professional trustee, is a powerful and enduring asset protection tool. While the evolving regulatory environment has made the role of trustee more complex, this is precisely why professional trusteeship adds such significant value – taking on the compliance burden so you don't have to, and ensuring your trust does exactly what it was designed to do.
If you would like to discuss whether a professional trustee is right for your trust, or if you have questions about how recent legislative changes affect you, we would welcome the opportunity to talk: phone us on +64 9 522 7955 or fill out our online form.
FAQ
Is it mandatory to have a professional trustee for a family trust in NZ?
No, it isn't mandatory, but it brings governance, independence, and continuity benefits that make a trust more robust and harder to challenge.
How does a professional trustee help protect a trust from being challenged as a sham?
An independent trustee strengthens the integrity of the structure, since decisions are made with proper documentation, oversight, and an impartial perspective, making the trust harder for creditors or a former spouse to successfully challenge.
What obligations do trustees have under the Trusts Act 2019?
The Act raised expectations for trustees around governance, documentation, and acting in beneficiaries' interests, on top of existing obligations like anti-money laundering compliance.Can a professional trustee help avoid a bad property purchase?
Yes – in one case, a GRA professional trustee reviewing a sale and purchase agreement identified a leasehold ground rent increase of nearly 400% due in six months, and advised the client not to proceed, saving them from a significant loss in value.Why might banks and lenders prefer dealing with a trust that has an independent trustee?
An independent professional trustee adds credibility and governance, giving third parties like banks, lenders, and legal advisers more confidence the trust is well run and compliant.
Anna Loginova
Partner
© Gilligan Rowe & Associates LP
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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
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