Trustee Default Duties, Liability and Indemnity
Remaining Estate
Default Duties & Liability
Sections 28 to 38 of the Trusts Act 2019 set out the default duties that your Trustee owes to your beneficiary/beneficiaries during the Life Interest. Those default duties can be modified or excluded by the terms of your Will.
Limited Interest
The Limited Interest clause in your Will modifies/excludes the following default duties: the duty to exercise the care and skill that is reasonable in the circumstances (the general duty of care); and the duty to exercise the care and skill that a prudent businessperson would when managing the affairs of others (the duty to invest prudently).
The general duty of care is modified/excluded because the Limited Interest clause implies that your Trustee is not required to inspect the property being used by the income beneficiary, or to check that the income beneficiary is making payments in relation to the property (if appropriate) during the Life Interest. This means that your Trustee may not be aware of, and may not take steps to avoid or mitigate, any loss or deterioration to the property.
Your Trustee is not responsible for any loss or deterioration to the property. This means the beneficiary/beneficiaries of your residual estate may have to meet the cost of mitigating any such loss or deterioration, or may have to accept a reduction in the value of your residual estate.
The duty to invest prudently is modified/excluded because your Trustee may make an interest free unsecured loan to the income beneficiary. This means that interest is not payable on the loan, and the loan is high-risk because there is no collateral to take as recourse in the event of default. If the loan is not repaid then the value of your residual estate will decrease, which will reduce the value received by the beneficiary/beneficiaries of your residual estate.
Your Trustee is not responsible for any loss caused by default on the loan.
[Include the following if the Trustee is also a beneficiary of the estate:
No conflict rules
Your Trustee is also a beneficiary of your estate. As a result, your Trustee’s default duty not to exercise their power for their own benefit, and the default duty to avoid a conflict between your Trustee’s interests and your beneficiaries’ interests are modified/excluded so as to allow your Trustee to benefit from your estate.]
Trustee Powers
Your Will includes trustee powers. The trustee power to retain investments is relevant if you have investments when you die. If so, your Trustee may hold onto those investments, even if they are not prudent investments. As a result, your Trustee’s duty to invest prudently is modified/excluded.
Your Trustee is not responsible for any loss caused by the retention of investments.
The trustee power to postpone the sale and conversion of your estate means that your Trustee may delay selling your assets (including assets that decline in value over time) if they think that is appropriate in the circumstances. As a result, your Trustee’s duty to invest prudently is modified/excluded.
Your trustee is not responsible for any loss caused by postponing the sale or conversion of your estate.
Indemnity
Your Will includes a ‘Liability of Trustee’ clause. This clause means that your Trustee is not responsible for a loss to your estate unless that loss was caused by your Trustee’s dishonesty, wilful misconduct or gross negligence. So long as your Trustee acts properly, the cost of any loss will be paid for by your estate.
Annual Income of Estate
Default Duties & Liability
Sections 28 to 38 of the Trusts Act 2019 set out the default duties that your Trustee owes to your beneficiary/beneficiaries during the Life Interest. Those default duties can be modified or excluded by the terms of your Will.
Limited Interest
The Limited Interest clause in your Will modifies/excludes your Trustee’s duty to exercise the care and skill that a prudent businessperson would when managing the affairs of others (the duty to invest prudently).
The duty to invest prudently is modified/excluded because your Trustee may make an interest free unsecured loan to the income beneficiary. This means that interest is not payable on the loan, and the loan is high-risk because there is no collateral to take as recourse in the event of default. If the loan is not repaid then the value of your residual estate will decrease, which will reduce the value received by the beneficiary/beneficiaries of your residual estate.
Your Trustee is not responsible for any loss caused by default on the loan.
[Include the following if the Trustee is also a beneficiary of the estate:
No conflict rules
Your Trustee is also a beneficiary of your estate. As a result, your Trustee’s default duty not to exercise their power for their own benefit, and the default duty to avoid a conflict between your Trustee’s interests and your beneficiaries’ interests are modified/excluded so as to allow your Trustee to benefit from your estate.]
Trustee Powers
Your Will includes trustee powers. The trustee power to retain investments is relevant if you have investments when you die. If so, your Trustee may hold onto those investments, even if they are not prudent investments. As a result, your Trustee’s duty to invest prudently is modified/excluded.
Your Trustee is not responsible for any loss caused by the retention of investments.
The trustee power to postpone the sale and conversion of your estate means that your Trustee may delay selling your assets (including assets that decline in value over time) if they think that is appropriate in the circumstances. As a result, your Trustee’s duty to invest prudently is modified/excluded.
Your trustee is not responsible for any loss caused by postponing the sale or conversion of your estate.
Trustee Indemnity
Your Will includes a ‘Liability of Trustee’ clause. This clause means that your Trustee is not responsible for a loss to your estate unless that loss was caused by your Trustee’s dishonesty, wilful misconduct or gross negligence. So long as your Trustee acts properly, the cost of any loss will be paid for by your estate
Family Home
Default Duties & Liability
Sections 28 to 38 of the Trusts Act 2019 set out the default duties that your Trustee owes to your beneficiary/beneficiaries during the Limited Interest. Those default duties can be modified or excluded by the terms of your Will.
Limited Interest
The Limited Interest clause in your Will modifies/excludes the following default duties: the duty to exercise the care and skill that is reasonable in the circumstances (the general duty of care); and the duty to exercise the care and skill that a prudent businessperson would when managing the affairs of others (the duty to invest prudently).
The general duty of care is modified/excluded because the Limited Interest clause implies that your Trustee is not required to inspect the principal family residence (the Property) during the Limited Interest. This means that your Trustee may not be aware of, and may not take steps to avoid or mitigate, any loss or deterioration to the Property.
Your Trustee is not responsible for any loss or deterioration to the Property. This means the beneficiary/beneficiaries of your residual estate may have to meet the cost of mitigating any such loss or deterioration, or may have to accept a reduction in the value of your residual estate.
The duty to invest prudently is modified/excluded because your Trustee has the ability to sell the Property and purchase a substitute property, including one which may depreciate in value (e.g. a retirement village unit). This means that the value of your residual estate may decrease, which would reduce the value received by the beneficiary/beneficiaries of your residual estate.
Your Trustee is not responsible for any loss caused by selling the Property and purchasing a substitute property.
[Include the following if the Trustee is also a beneficiary of the estate:
No Conflict Rules
Your Trustee is also a beneficiary of your estate. As a result, your Trustee’s default duty not to exercise their power for their own benefit, and the default duty to avoid a conflict between your Trustee’s interests and your beneficiaries’ interests are modified/excluded so as to allow your Trustee to benefit from your estate.]
Trustee Powers
Your Will includes trustee powers. The trustee power to postpone the sale and conversion of your estate means that your Trustee may delay selling your assets (including assets that decline in value over time) if they think that is appropriate in the circumstances. As a result, your Trustee’s duty to invest prudently is modified/excluded.
Your trustee is not responsible for any loss caused by postponing the sale or conversion of your estate.
Indemnity
Your Will includes a ‘Liability of Trustee’ clause. This clause means that your Trustee is not responsible for a loss to your estate unless that loss was caused by your Trustee’s dishonesty, wilful misconduct or gross negligence. As long as your Trustee acts properly, the cost of any loss will be paid for by your estate.
