The Trusts Act 2019 specifies that an individual must have the legal capacity to perform the functions of a trustee. This means they must be able to understand the nature and implications of their role and make decisions accordingly. Under the Act certain individuals and entities are prohibited from acting as trustees. These restrictions aim to ensure that trustees are competent, trustworthy, and capable of fulfilling their fiduciary duties effectively.
1. Minors
Individuals under the age of 18 years are not allowed to act as trustees. This is due to their lack of legal capacity to enter into contracts or manage financial responsibilities.
2. Insolvent Individuals
An undischarged bankrupt cannot be a trustee. An undischarged bankrupt is an individual who has been declared bankrupt but has not yet completed the bankruptcy process. This status comes with significant financial restrictions, legal obligations, and implications for asset management. This restriction is in place because of concerns a bankrupt individual may not be able to manage trust assets responsibly and could pose a risk to the trust's financial integrity.
3. Individuals who lack the capacity to perform the functions of a trustee
Individuals who are unable to manage their affairs due to mental incapacity, such as those with severe cognitive impairments, dementia, or other mental health conditions, may be deemed incapable of fulfilling the responsibilities of a trustee. This restriction is to ensure that trustees are capable of understanding their duties and making sound decisions.
4. Insolvent Companies
If a corporate entity or trustee company is in liquidation or has been declared insolvent, it cannot act as a trustee. The financial stability of the trustee is crucial for the effective management of trust assets.
The Trustee Companies Act 1967 continues to govern the specific operations of corporate trustees (trustee companies), including licensing and regulatory requirements. However, where the two Acts intersect, the provisions of the Trusts Act 2019 will apply to the administration of trusts, even if a corporate trustee is involved.
In summary, individuals and entities who cannot act as trustees in Aotearoa New Zealand law include minors, insolvent individuals and those lacking capacity. These restrictions are in place to ensure that trustees are capable of managing trust assets responsibly and in the best interests of the beneficiaries. If you are considering appointing a trustee, it is advisable to assess their eligibility carefully and consult legal professionals if necessary.
