How to Choose Trustees for Your Family Trust: Expert NZ Guide

Choosing trustees is one of the most important decisions you’ll make when establishing a family trust. The wrong trustees can undermine your trust’s effectiveness, create family conflict, and expose you to liability. This comprehensive guide explains exactly how to select trustees who will protect your family’s interests for decades to come.

Why Trustee Selection Matters

Trustees have significant legal responsibilities and control over your family’s wealth. Poor trustee selection can result in:

• Breach of mandatory duties under the Trusts Act 2019
• Family disputes and relationship breakdown
• Poor investment decisions losing trust value
• Tax compliance failures and IRD penalties
• Beneficiary conflicts over distributions
• Personal liability for trustees (including you)

The Stakes Are High: Trustees can be personally liable for breaches of duty, potentially losing their own assets to compensate the trust. Choosing carefully protects everyone.

The Role and Responsibilities of Trustees

Before selecting trustees, understand what you’re asking them to do:

Mandatory Duties (Cannot Be Excluded)

Under the Trusts Act 2019, ALL trustees must:

1. Know the trust terms - Read and understand the trust deed thoroughly
2. Act in accordance with trust deed - Follow the deed’s provisions exactly
3. Act honestly and in good faith - No self-dealing or conflicts of interest
4. Act for benefit of beneficiaries - All decisions must benefit beneficiaries as a whole

Default Duties (Can Be Modified in Deed)

5. Exercise care and skill - Standard of a prudent person of business
6. Invest trust property prudently - Diversify and manage risk
7. Not profit from trusteeship - Unless deed allows trustee fees
8. Act unanimously - Unless deed allows majority decisions
9. Avoid conflicts of interest - Disclose and manage conflicts
10. Act impartially - Balance interests of different beneficiaries

Practical Responsibilities

• Annual meetings and minute preparation
• Financial record-keeping and accounts
• Tax compliance (IR6 returns, beneficiary statements)
• Asset management (property, investments)
• Distribution decisions to beneficiaries
• Dealing with beneficiary requests for information
• Professional engagement (lawyers, accountants)

Most trustees spend 10-20 hours per year on trust administration, more if the trust is complex or has disputes.

Essential Qualities for Trustees

1. Trustworthiness and Integrity

Why It’s Critical: Trustees have legal control over trust assets. They must act honestly even when no one is watching.

Red Flags:

• History of financial dishonesty
• Gambling or addiction issues
• Legal troubles or convictions
• Relationship conflicts with beneficiaries
• Self-interest over family interest

Assessment: Would you trust this person with your child’s inheritance? If there’s any doubt, look elsewhere.

2. Financial Capability

Why It’s Critical: Trustees make investment decisions, manage property, review accounts, and ensure tax compliance.

Desired Skills:

• Basic financial literacy (budgeting, investing, tax)
• Business acumen if trust owns a business
• Property management experience (if trust owns rentals)
• Ability to read financial statements
• Understanding of risk and return

Red Flags:

• Personal bankruptcy history
• Poor personal financial management
• No understanding of investments
• Reluctance to seek professional advice

Reality Check: Trustees don’t need to be financial experts—they can engage accountants and advisors. But they must understand enough to ask the right questions and make informed decisions.

3. Availability and Commitment

Why It’s Critical: Trust administration requires regular attention. Absent trustees can’t fulfill their duties.

Time Requirements:

• Annual meetings (2-4 hours)
• Document review (2-3 hours)
• Beneficiary communications (variable)
• Professional advisor meetings (2-3 hours)
• Distribution decisions and resolutions (2-4 hours)

Red Flags:

• Lives overseas with limited NZ contact
• Already overcommitted (multiple directorships, demanding job)
• Age or health concerns (will they be capable in 10 years?)
• Frequent travel or extended absences

Practical Tip: Ask potential trustees directly: “Can you commit to 2-3 trustee meetings per year for the next 10-20 years?” If they hesitate, they’re not the right choice.

4. Independence and Objectivity

Why It’s Critical: Trustees must make impartial decisions benefiting all beneficiaries, not just themselves or favorite family members.

Ideal Characteristics:

• No personal financial interest in trust decisions
• Emotional distance from family conflicts
• Willingness to say “no” when appropriate
• Not financially dependent on trust distributions
• Can mediate between conflicting beneficiary interests

Red Flags:

• Financially dependent on trust distributions
• Favors one child over others
• Involved in family disputes
• Personal benefit from trust decisions

Balancing Act: Family trustees provide knowledge and care; independent trustees provide objectivity. A mix is often best.

5. Communication Skills

Why It’s Critical: Trustees must explain decisions, provide information to beneficiaries, and manage family expectations.

Desired Skills:

• Clear written and verbal communication
• Emotional intelligence
• Conflict resolution ability
• Patience with beneficiary questions
• Willingness to document decisions

Red Flags:

• Avoids difficult conversations
• Poor written communication
• Gets defensive when questioned
• Unwilling to explain reasoning
• Secretive or evasive

Beneficiary Rights: Under the Trusts Act 2019, beneficiaries have rights to information. Trustees must be comfortable providing it.

Family Trustees vs Professional Trustees

Family Trustees (e.g., Spouse, Adult Children)

Advantages:

• Deep knowledge of family circumstances
• Genuine care for beneficiaries
• No trustee fees (usually)
• Long-term continuity
• Personal stake in good outcomes

Disadvantages:

• Potential conflicts of interest
• Emotional decision-making
• Lack of technical expertise
• Family relationship strain
• Difficulty being objective

Best For:

• Straightforward trusts
• Close, harmonious families
• When combined with professional trustee
• As majority of trustee board

Cost: Typically no fees (family members serve voluntarily)

Professional Trustees (Lawyers, Accountants, Trust Companies)

Advantages:

• Legal/financial expertise
• Objectivity and independence
• Experience with trust administration
• Understand compliance requirements
• No emotional involvement

Disadvantages:

• Annual fees ($1,500-$5,000+)
• Less personal knowledge of family
• May be too conservative
• Firm changes (partner retires, firm merges)
• Transactional relationship

Best For:

• Complex trusts (business assets, multiple properties)
• Family disputes or tension
• High net worth estates
• When no suitable family members
• As minority independent trustee

Cost: Annual fees typically $1,500-$3,000 for standard trusts, $3,000-$8,000+ for complex trusts

The Optimal Combination

Recommendation: 2-3 trustees with a mix of family and professional

Example Structures:

Structure 1: Small Family Trust

• Husband + Wife + Independent Professional
• Benefit: Family control with independent oversight
• Cost: ~$1,500-$2,500/year professional fee

Structure 2: Business Family Trust

• Parent + Adult Child + Accountant
• Benefit: Succession planning + financial expertise
• Cost: ~$2,000-$4,000/year professional fee

Structure 3: Blended Family

• Current Spouse + Lawyer + Trusted Family Friend
• Benefit: Independence prevents favoritism claims
• Cost: ~$2,500-$4,000/year professional fee

Structure 4: High Net Worth

• 2 Family Members + Trust Company
• Benefit: Professional governance for complex estate
• Cost: ~$5,000-$10,000/year professional fee

Common Trustee Selection Mistakes

Mistake 1: Only Appointing Yourself

The Problem: If you’re the only trustee, courts may view the trust as a “sham” (you effectively still own everything). Asset protection is compromised.

The Fix: Appoint at least one independent trustee, preferably two additional trustees total.

Legal Principle: Trusts require separation between settlor, trustee, and beneficiary to be effective. Being all three undermines the structure.

Mistake 2: Appointing All Children as Trustees

The Problem: When siblings are all trustees, family dynamics can paralyze decision-making. Disagreements stall trust operations.

The Fix: Appoint 1-2 capable children (not all), or include independent trustees to break deadlocks.

Real Example: Five siblings as trustees required unanimous consent. One sibling had a grudge and blocked every decision for 3 years. The trust couldn’t function.

Mistake 3: Choosing Based on “Fairness” Not Capability

The Problem: Parents feel they must treat all children equally, so they appoint all as trustees even if some aren’t capable.

The Fix: Choose trustees based on capability, not equality. Other children can be beneficiaries without being trustees.

Remember: Being a trustee is a responsibility, not a privilege. Not everyone is suited for it.

Mistake 4: Not Providing for Trustee Succession

The Problem: Trustees age, become incapacitated, or predecease trust beneficiaries. Without succession planning, the trust can become inoperable.

The Fix: Appoint alternate trustees in the trust deed, or give remaining trustees power to appoint replacements.

Example Clause: “If a trustee retires, dies, or becomes incapacitated, the remaining trustees may appoint a replacement by written resolution.”

Mistake 5: No Independent Trustee

The Problem: All family member trustees can make biased decisions, and courts may question the trust’s independence.

The Fix: Include at least one independent trustee (lawyer, accountant, trust company) who has no beneficiary interest.

Asset Protection Benefit: Independent trustees demonstrate the trust is genuinely separate from your personal control.

Mistake 6: Appointing Overseas Residents

The Problem: NZ tax residence of trusts depends partly on trustee residence. Foreign resident trustees can trigger foreign trust tax status.

The Fix: Majority of trustees should be NZ tax residents, especially for trusts with NZ assets.

Tax Consequence: If trustees are predominantly overseas, the trust may lose NZ tax resident status, creating complex international tax issues.

Special Considerations

Appointing Your Spouse

Advantages: Natural choice, cares about family, understands circumstances

Risks:

• Relationship property considerations
• Divorce complications
• Conflicts if you’re also beneficiary
• Not independent for asset protection

Best Practice: Include spouse as one trustee among 2-3 total, not sole trustee

Appointing Adult Children

When It Works:

• Children are mature (25+)
• Financially responsible
• Family relationships are good
• You’re also a trustee (succession planning)

When It Doesn’t:

• Children are young or immature
• Drug/gambling issues
• Family conflict between siblings
• Financial irresponsibility

Timing: Often best to appoint children when they’re 30+ and proven capable

Corporate Trustees

What It Is: Appointing a company (like a trust company) as trustee instead of individuals

Advantages:

• Continuity (no death/incapacity issues)
• Professional governance
• Clear processes and systems
• Regulatory oversight
• No personal liability for directors

Disadvantages:

• Higher cost ($3,000-$10,000+/year)
• Less personal touch
• Bureaucratic processes

Best For: Large estates ($5M+), complex business structures, family disputes

The Trustee Appointment Process

Step 1: Identify Candidates List potential trustees considering all factors above

Step 2: Have the Conversation Ask potential trustees if they’re willing and able. Explain:

• Time commitment (10-20 hours/year)
• Legal responsibilities and potential liability
• Need for unanimous/majority decisions
• Trust purpose and family situation
• Your expectations

Step 3: Professional Assessment If unsure, consult your lawyer. They can assess whether your trustee combination is appropriate.

Step 4: Formal Appointment Trustees are appointed in the trust deed (initial trustees) or by deed of amendment (replacement trustees).

Step 5: Trustee Acceptance All trustees must formally accept appointment in writing, acknowledging their duties.

Step 6: IRD Notification Notify IRD of trustee changes within required timeframes

When to Change Trustees

Remove/Replace Trustees When:

• Trustee becomes incapacitated
• Trustee dies
• Trustee resigns (requires formal process)
• Trustee breaches duties
• Relationship breakdown (e.g., divorce)
• Trustee becomes unsuitable (e.g., bankruptcy)
• Family circumstances change

Process:

1. Review trust deed (does it allow removal?)
2. Follow removal procedure in deed
3. Formal trustee resolution
4. Deed of amendment (if required)
5. Notify IRD and trust service providers

Legal Requirement: Under Trusts Act 2019, trustees can retire or be removed, but proper documentation is essential.

Questions to Ask Potential Trustees

Before finalizing your selection, ask candidates:

1. “Do you understand the time commitment (20+ hours/year)?”
2. “Can you commit to this role for at least 10 years?”
3. “Are you comfortable making difficult decisions that might upset family members?”
4. “Will you seek professional advice when needed?”
5. “Can you work collaboratively with other trustees?”
6. “Do you have any conflicts of interest with the trust or beneficiaries?”
7. “Are you willing to keep proper records and minutes?”
8. “Will you provide information to beneficiaries when they request it?”

Their answers will reveal whether they truly understand the role.

Red Flags: When NOT to Appoint Someone

🚩 They’re reluctant or hesitant about accepting

🚩 They don’t understand what trustees do

🚩 They have financial problems or poor money management

🚩 They’re involved in family disputes

🚩 They have conflicts of interest with beneficiaries

🚩 They’re frequently overseas or unavailable

🚩 They refuse to engage professional advisors

🚩 They want to control everything without input

🚩 They can’t work cooperatively with others

If you see multiple red flags, find a different trustee—no matter how much you like the person.

Frequently Asked Questions

Q: How many trustees should I have? A: Minimum 2, optimal 2-3. More than 4 becomes unwieldy for decision-making.

Q: Can I be the only trustee of my own trust? A: Legally yes, but it undermines asset protection. Courts may treat it as a sham trust.

Q: Can trustees be paid? A: Yes, if the trust deed allows. Professional trustees typically charge fees. Family members usually serve for free but can be remunerated.

Q: What if trustees disagree? A: Depends on your trust deed. Most require unanimous consent unless the deed allows majority decisions. Include a dispute resolution clause.

Q: Can I force someone to be a trustee? A: No. Trusteeship must be voluntary. Unwilling trustees make poor trustees.

Q: Can I remove a trustee who’s doing a bad job? A: Yes, if the trust deed allows removal or if they breach their duties. Legal process required.

Q: Should all trustees be family members? A: No. Including an independent professional trustee adds objectivity and expertise.

Next Steps

Choosing trustees is too important to rush. Take time to:

1. List potential candidates considering all factors in this guide
2. Have honest conversations with potential trustees
3. Seek professional advice from your lawyer
4. Document your decision in the trust deed
5. Review periodically (every 5 years or when circumstances change)

Need Help Selecting Trustees? We provide trustee selection consultation as part of our trust setup service. We’ll assess your situation and recommend an appropriate trustee structure for your family.

Book a free consultation to discuss your trustee options and ensure your family trust has the governance it needs for long-term success.

Remember: The right trustees protect your family’s wealth for generations. The wrong trustees create problems that can take years and thousands of dollars to fix. Choose wisely.