Lawyers acting as trustees

 Vicki Ammundsen60x70 1                 Lawyers commonly act as trustees. The appointment as a trustee can help cement a relationship with a client and can ensure an on-going fee stream. Where a lawyer acts as a trustee the lawyer is often referred to as the professional trustee. Sometimes such trustees also refer to themselves as a “passive trustee”. 

However, nothing in fact turns on this nomenclature because, despite what the different parties may choose to believe, the same duties and obligations apply to all trustees. To quote Katz J in his decision in Selkirk v McIntyre [2013] NZHC 575 “Equity simply does not recognise the concept of an ‘active’ trustee or a ‘passive’ trustee. All trustees are accountable to the beneficiaries of the trust and must account to them for its proper administration.”

The difficulty that many lawyers face is that the appointment as trustee is not necessarily remunerated in and of itself, and perhaps because of this, some professional trustees fall short of the mark. Another issue that arises in practice is that where trusts and relationships intermingle, the creeping passage of time can wreak havoc on originally sensible arrangements. 

In the recent High Court decision of Spence v Inder [2013] NZHC 1478, Priestly J noted that “Despite the initial orthodox and sensible arrangements evinced by the trust and s 21 agreement, carelessness, confusion, and chaos rode in behind the couple. Their family lived in properties owned by the trust. Both the man and the woman’s mother advanced substantial sums to the trust. Startlingly no one took any steps to prepare annual accounts and balance sheets for the trust. The s 21 agreement was never reconsidered or updated.”

Extraordinarily it is also noted in the judgment that “Expenditure or reimbursement by the trust [was] permitted so that [the third trustee] could earn air points.”

It may be surprising against this backdrop to note that the trust did in fact have a professional trustee. In that regard Priestley J noted that:

“I find it remarkable that a professional trustee…did not inquire or insist that some documentation was in place…to record the large advance made on 11 October 2006 and the terms on which such an advance was made. This was a year before [the professional trustee] retired as trustee. Doubtless in some measure that oversight on his part lies behind the $155,000 settlement payment he has made to Mr Spence.”

We all have bad days at the office.  However, as lawyers, our bad days reflect on the entire profession. It is easy to read decisions like this and be suitably concerned about the standard of trustee services offered.

A more practical response might be to consider how many other professional trustees are acting, perhaps not quite as haphazardly, but sufficiently short of the mark, such that as a profession we should be taking note. Increasing numbers of lawyers who accept trustee appointments are doing so through trustee companies. While this is a practical response to liability issues, it does not address the standard of trustee services offered.  

Anecdotal evidence suggests that the biggest barrier to competent trustee services is our clients’ willingness to pay. However, perhaps the real barrier is our own reluctance, as a profession, to put forward sensible fee structures for trustee services that factor in the amount of time required to do the job properly.

Vicki blogs on all things trusts at
www.mattersoftrust.wordpress.com

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