Powers of Attorney in light of the new Trusts Act
Now that the trans-Tasman bubble is in place and passports are being dusted off, it is a good time to incorporate in your travel plans an updated power of attorney before you leave, particularly if you are a trustee of a trust. One of the least talked about aspects of the new Trusts Act that came into force earlier this year has been a rewriting of the law relating to the delegation of trustee powers. These are powers that can be exercised by another person while a trustee is absent from New Zealand, or is temporarily uncontactable or incapacitated.
The power of a trustee to give someone else a delegated power to do certain acts on behalf of a trust, or to make decisions in relation to trust property, is a power specifically given by statute. Until recently that power to delegate was given under the now repealed Trustee Act 1956, but the Trusts Act 2019 provides a similar, but not identical, power. Previously, a trustee planning on going overseas or into hospital for an operation might think to mention those intentions to their lawyer in the course of some other business, and the lawyer might suggest it would be prudent for the trustee to sign a power of attorney which contained a trustee delegation of powers. Since the coming into force of the new Trusts Act that haphazard approach to ensuring prompt and effective trust administration in the absence of a trustee needs to be revisited.
The new Trusts Act imposes a specific duty on every trustee to "consider actively and regularly whether the trustee should be exercising one or more of the trustee's powers." There is now therefore a statutory duty on trustees who are going overseas, or who are expecting to be temporarily incapacitated or uncontactable, to consider actively if they should be exercising their power to execute a power of attorney delegating their powers of trust administration during that period. A failure to do so may well be a breach of duty with adverse consequences.
We strongly recommend that, if you are a trustee and expect to be away from New Zealand or out of action, you discuss your plans with us beforehand, and seek our advice on an appropriate power of attorney to put in place in the interests of the trust and yourself.
Existing Powers of Attorney
Although the new Trusts Act has repealed the former Trustee Act, the new Act recognizes that a delegation that was "in place" before the new Act came into force on 30 January 2021 continues after that date, subject to the terms of the delegation and the terms of the trust. It is not clear whether "in place" means a power of attorney has been executed under the former Act, or whether the power has been activated by the triggering event. The old Act specifically stated that the power of attorney did not come into operation unless and until the donor was out of New Zealand or was incapable of performing their trustee's duties. Arguably, the delegation is not in place until it takes effect.
We therefore strongly recommend that, if you are a trustee who has in the past executed a power of attorney with an intended delegation of powers under the old Trustee Act, you arrange to see us so that we can provide for a new power of delegation under the new Act, and avoid the risk of the trustee delegation under the old power of attorney form being held to be ineffective.
Even if the old power of attorney forms are given the benefit of the doubt as to their general validity now, there is another potentially fatal trap in seeking to rely on the old forms once the delegated powers have been activated. The old Act contained a specific provision that deemed a power of attorney to be revoked by the trustee's return to New Zealand or the trustee's recovery (as the case may be), unless the power of attorney document provided otherwise. The standard Law Society power of attorney form, to which many lawyers resorted to save time, was printed for many years without the saving provision. The inevitable result in respect of those forms is that once the power of attorney was activated by the triggering event (overseas travel or temporary incapacity), and whether or not it was ever used, the power of attorney was automatically revoked by the trustee's return to New Zealand or return to good health. These forms were single-use items, like a banana skin, and potentially just as hazardous if trustees didn't watch what they were doing.
Trusts Act 2019
Section 70 of the new Trusts Act has been enacted in an attempt to strike a balance between the desire for flexibility on when a trustee may delegate his or her powers against the need to ensure that delegation does not become overused. Delegation may be exercised when necessary, in the following circumstances because of the trustee's:
- Absence from New Zealand; or
- Temporary inability to be contacted; or
- Temporary physical incapability; or
- Temporary lack of capacity to perform the functions of a trustee.
There are typically good reasons why a particular person has been appointed as a trustee, for example, the skills and knowledge that they bring to the role. It is therefore not desirable to allow another person to act in their place for an extended period of time. Section 70 of the Trusts Act 2019 outlines that delegation is only temporary by placing a 12 month limit on the duration of any delegation. This 12 month restriction can be extended by a further 12 months if the delegation continues to be necessary in the circumstances described in (a)-(d) above. This adds flexibility to extend where the circumstances do not exactly fit the specified 12 month time frame. Should a second 12 month period end and the trustee still be unable to act then it is a good indicator that delegation may no longer be appropriate in the circumstances and it may be better for the trustee to resign from their position. A delegate may exercise a trustee's power to resign under Section 70(6) unless the trustee has made clear in an instrument of delegation that they do not have the power to do so.
Written by Mina Kiryakos (Property & Commercial Solicitor) and Chris Foote (Property , Trusts & Litigation Consultant)