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THE EVOLUTION OF TRUSTEES – FROM MEDIEVAL ENGLAND TO CONTEMPORARY NZ
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The role of a trustee and its variants have evolved significantly over many centuries. Grain surpluses 7000 years BC apparently led to the development of the concept of “bailment” and increasing trade in commodities and precious metals led to the concepts of “agency”, “brokerage”. “custody” and “mandate”. The Greeks, Romans and Egyptians all had legal relationships and structures similar to modern day trusts which they used to hold and manage property for estate planning and commercial purposes (K Wallace, The First Professional Trustees, Trust Quarterly Review, volume 16, issue 2, (2018), p 12).

The influence of the Knights Templar

The Knights Templar are perhaps the forerunners of the modern day trustee. In the 11th century, devout pilgrims from Europe visited the Holy Land, but were frequently robbed or exploited on their pilgrimage across south-east Europe and the Middle East. In response, knights were mobilised to guard the pilgrims on their travels.

The Knights Templar developed a reputation as obedient, religious defenders of Christians. They were granted exemptions from local taxes and entitled to paint a Templar cross on their properties to declare their tax free status to the authorities. Perhaps predictably, some other opportunistic property owners mischievously copied this and thereby carried out an early example of tax evasion.

As a highly respected, well organised, devout and prosperous religious order, the Knights Templar were entrusted with estates while the owners went on pilgrimages or crusades to the Holy Land. They became property managers, consolidators of small parcels of land into large estates, revenue generators, cash accumulators, lenders, and distributors of surplus funds.

An important reason why the Knights Templar were so highly regarded and entrusted with such responsibility was that they were independent, experienced and qualified professionals. They were also subject to rigorously enforced moral, legal and religious codes. They were accountable, organised and structured and were fulfilling a calling that required them to put the interests of others ahead of their own.

It was on this basis that the office of trustee as we know it today evolved in England and then, with the advent of British imperialism, was transplanted to all corners of the globe. However, since Commonwealth independence after the Second World War the use of trusts and the role of trustees in various countries has arguably been less influenced by these English origins and jurisprudence as local advisers, courts and parliaments have customised the use of trusts to a domestic context.

In some countries this customisation has been very successful and led to sophisticated financial services industries and eminent judges, trustees and professionals expert in the law, governance and administration of trusts. In other countries, the outcomes have been less successful.

Unfortunately, in my view, the use, governance and administration of trusts in New Zealand has evolved in a way that leaves some things to be desired.

The role of trustees and the use of trusts in New Zealand

Trusts are typically the centrepiece of a New Zealand family’s asset plan. However, quite often people in New Zealand have assets held in trust in circumstances where they receive only limited benefit from the arrangements. In many cases, the trusts may just add unnecessary complexity and expense to people’s lives. This soon becomes apparent when the family is refinancing, buying and selling property, preparing tax returns or adjusting succession planning settings. Some of these trusts may not withstand scrutiny from the court because of the way they are set up and/or operated.

Another unique aspect of New Zealand asset planning is the distinct lack of independent governance of trusts and family investment holding entities (such as underlying companies). Globally, there is an entire industry dedicated to the independent governance of private wealth. However, in New Zealand we tend to conflate the provision of two very distinct functions, legal advice and fiduciary services. In each case the providers of those services require different skills and have duties which are owed to different classes of people.

Trusts are one of the most complex legal relationships. Many lawyers do not properly understand trusts and fiduciary powers and duties, let alone lay settlors, trustees and beneficiaries. In New Zealand, most clients are reluctant to appoint an independent professional trustee who is not also the family lawyer or accountant. A problem with that approach is that the family lawyer or accountant could be conflicted by a long-standing relationship with the people who set up the trust (whose interests may become misaligned with the next generation) and unaware of, or unable to fulfil, fiduciary duties to the wider family. In many cases he or she will not have the specialist skills to perform the role in an increasingly complex and regulated modern professional environment.

In other countries, it is generally undesirable for family members to be the trustees and/or have effective control over the trust. Instead, truly independent, professional and licensed trustees are typically granted wide discretionary powers, which they exercise judiciously, whilst mindful of fiduciary and other duties which are enforced by the courts and regulators.

Historically, these idiosyncrasies were probably of only academic relevance in New Zealand, given net asset values may have been low and the interests of the beneficiaries and the trustees are often aligned whilst the second generation are young and uninformed. However, in recent years some asset classes have increased exponentially in value and many beneficiaries have grown into adulthood and are likely to be better educated, informed and advised in relation to trust matters. This represents both risks and opportunities for advisers and, in my view, requires us to rethink the way we have traditionally done asset planning in New Zealand.

Paradoxically, this may lead us to consider the example set by the Knights Templar many hundreds of years ago and commit to a higher standard of governance and administration of trusts in New Zealand. As the private wealth sector matures and aligns with other countries, there should be commercial opportunities for specialised, independent, professional (and perhaps regulated) trustees to fulfil these increasingly important governance and administrative roles.

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