Trustees have significant responsibilities and legal obligations when investing trust assets.
Under law, there is a strong emphasis on the Prudent Person Standard and Modern Portfolio Theory.
Under the Prudent Person Standard, trustees must invest trust funds as a prudent person would. This means exercising skill, care and diligence required in managing the affairs of others. While many people act as though their trust is an extension of their own assets, in reality the assets in a trust are legally separate and must be managed as such.
New Zealand law encourages, and in some cases requires, trustees to use Modern Portfolio Theory (MPT) when managing an investment portfolio held by a trust. This means constructing a diversified portfolio to maximise returns for a given level of risk and agreed timeline. As a trustee, you are required to balance the interests of beneficiaries who receive income from the trust portfolio with the interests of beneficiaries who receive capital.
So, what are some practical steps trustees should take to ensure that they comply with the law?
- Review the trust deed to identify any specific directions or restrictions regarding investing. In addition, be familiar with the provisions of sections 30, 58, 59 and 74 of the Trusts Act 2019.
- Seek professional advice from a financial adviser who understands both investment matters but also is familiar with trust law and the approach for protecting trustees.
- Ensure that the trust investment portfolio complies with the Prudent Person standards and Modern Portfolio approach.
- The investment strategy should be regularly and continuously monitored and where necessary adjustments made to the portfolio.
- Ensure all decisions are recorded in written minutes with the reasoning behind those decisions – especially if investing in non-standard investments.
- While not a requirement, it is usually a good idea to consult/inform beneficiaries regarding investment strategies. This can avoid surprises and conflict at a later date.
Trustees who fail to meet their obligations risk being held liable for losses or for failing to act in beneficiaries’ best interests.
CP Wealth has a deep understanding of investing for trusts and have developed investment strategies and reporting that ensures trustees meet their obligations. If you are a trustee and would like more information, please contact us.
30 June 2025
By Richard Austin, Consultant
CP Wealth