by John Wojtowicz (Director - Law Central Legal)

The position of a Trustee is an important position. The Trustee’s duties are covered between legislation in each state, commonwealth legislation and case law of which many cases are pre 1900’s.

In this newsletter, we cover the issues of whether a Trustee of a family trust can delegate their authority or powers to third parties. Similar issues relating to a Trustee of an SMSF will be dealt with in part 2 of a future newsletter.

Trustee’s Duties

Trustees of family trusts have many duties. Many of these have been formulated by Judges through case law over the ages. Broadly speaking, the Trustees:

• Must act in good faith
• Must act personally
• Must act unanimously where multiple Trustees are involved
• Must not be dictated to by others (ie beneficiaries)
• Have a duty to consider how distributions should be made and to whom
• Have a duty to avoid fettering of discretion.

The Trustee also has fiduciary duties which exist alongside the various statutory obligations imposed on Trustees.

We will primarily focus on the duty to act personally.

In a nutshell, this duty cannot be delegated unless permitted by the trust instrument (deed), statute or court order. The office of Trustee is viewed by the courts as one of trust and personal confidence. A common mistake is for a Trustee to execute a power of attorney to a third party (the attorney) granting the attorney general or wide ranging powers relating to the authority of the Trustee. More often than not these powers of attorney, if granted outside the scope permissible by law, will not be enforceable and can have severe consequences if acted upon.In NSW section 10 of the Powers of Attorney Act 2003 states : “A prescribed power of attorney does not confer authority to exercise any function as a trustee that is conferred or imposed on the principal.”

Clearly under this section a statutory prohibition is applied to the Trustee granting a prescribed power of attorney and is consistent with the general principle that a Trustee cannot delegate.

In Victoria, under the Powers of Attorney Act 2014, a delegation of the Trustee’s powers under a general power of attorney is not permitted under section 7(2)(b). The same applies for enduring powers of attorney when section 22(1) is read in conjunction with section 7(2)(b).

In South Australia, under the Powers of Attorney and Agency Act 1984, a delegation of the Trustee’s powers under a general power of attorney is not permitted under section 5(4).

Under various state legislation the Trustees are permitted to appoint delegates in limited circumstances . In Western Australia and Queensland the Trustees Act 1962 (WA) (section 54) and Trusts Act 1973 (Qld) (section 56) respectively permit Trustees to appoint an attorney when the Trustee is temporarily out of the state or the Trustee is temporarily incapable of performing his duties as Trustee due to physical infirmity. All state Trustees Acts need to be read in conjunction with other state legislation dealing with powers of attorney.

Agents

Whilst, as a general rule, the law of equity prohibits a Trustee from delegating its duties, a Trustee may appoint agents to help administer the trust.

State legislation also covers the conditions of the appointment of agents to the trust.

Duty to Act Unanimously

What happens when there is more than one Trustee - can one Trustee not consider a matter and leave it to the other Trustees to decide upon?

In the case of Cock and Howden v Smith (1909) 9 CLR 773 the High Court held that the Trustees had failed to exercise a discretion as a result of one of the Trustees, in the mistaken belief that he was bound by the majority decision of all the Trustees, failed to address his mind to the issue at hand. Griffith CJ (at p 799) asked “how far has there been a real exercise of joint discretion applied to the relevant facts” and (at page 800) upon the evidence the “trustees never applied their minds collectively to all the circumstances of the case.”

In essence where multiple Trustees are involved, any decision by them must be joint and unanimous.

SMSF Position

A statutory exception exists for SMSF. A future newsletter will address the issues of powers of attorneys in relation to SMSF.

Appointor Position in the Family Trust

Does an Appointor in a family trust, who normally has the power to dismiss the Trustee, be bound by the same rules as the Trustee when it comes to delegating his powers?

Platinum and Gold members read on to find the answer.

Disclaimer: The content of this Bulletin is general information only. It is not legal advice. Law Central Legal recommends you seek professional advice before taking any action based on the content of this Bulletin.