Worth Richard: Trustee Amendment Bill — First Reading 
Worth Richard: Trustee Amendment Bill — First Reading 
[Volume:642;Page:12356] 
Dr RICHARD WORTH (National) 
: 
 National supports the Trustee Amendment Bill and in the short time that is remaining to me I will talk about the law of trusts generally and turn to some of the particular provisions in this bill that cause National members some concern. I start by saying that the law of trusts is a complex area of the law with arcane expressions and difficult concepts. Unsurprisingly it is studded with case law—case law decisions of the judges in some cases establishing conflicting legal principles. 
It is also fair to say that trusts have a very substantial history of use and take a range of forms. Indeed if one just quickly reflects on how many types of trusts exist there are to be seen bare trusts fixed trusts discretionary trusts trading trusts blind trusts which are known as secret trusts and perhaps finally implied or resulting trusts. So these days it is a real business for law and accounting firms to establish trusts and to be involved in their administration. 
 I guess as a general comment I would say that people make trusts for a number of reasons. That is why this legislation and the changes that are made to the Trustee Act 1956 are important. One of the reasons for creating a trust is to reduce the personal assets of the settlor for the purpose of meeting asset-testing or income-testing criteria. There are lots of illustrations of this. One such illustration is the asset-tested benefits in the residential care subsidy scheme for those people over 65 years of age who have been assessed as needing long-term residential care over an indefinite period. That is one reason why a settlor might form a trust. Another reason for forming a trust would be as a means of spreading income and reducing exposure to income tax. That is a common use of trusts today. 
A third reason to form a trust would be as a creditor protection mechanism. That is commonly and traditionally employed in the case of professional partnerships—law firms and accounting firms that for a significant period of time did not have the benefit of incorporation. The protection of assets against creditors is a common reason for the transfer of assets to a trust. By transferring assets at the appropriate time from the individual’s personal asset base those assets need not be later applied to the satisfaction of an individual’s creditors in the event of financial difficulties arising. The family of the debtor will often be beneficiaries of the trust. Therefore the family will continue to be the recipients of income generated by the trust and will have the use of the assets in the trust such as the family home. 
Another reason which will be familiar to members is the divesting of assets to protect against the Property (Relationships) Act 1976. That has an increasing focus in a world in which not only are marriage break-ups common but also financial obligations of quite dramatic proportions can occur arising from the break-up of de facto relationships. I suppose finally one can look at that class of case where a trust is set up to divest assets to protect against claims under the Family Protection Act and the Law Reform (Testamentary Promises) Act 1949. 
We have the Trustee Act 1956 and the Trustee Amendment Bill which is before the House today and which National supports. I noted in my earlier comments that this particular change in the law is based upon a Law Commission report released in April 2002. The commission saw those changes as being urgently required. Sadly it has taken 5 years for legislation to now emerge—as this the first reading of the Trustee Amendment Bill. In the time that remains I would like to just touch on a couple of provisions in the legislation starting with the power to insure. That has been a vexed issue over the years and is now to be resolved by this legislation. 
The current law—the Trustee Act 1956—provides in section 24 for trustees to insure in a variety of circumstances; three broadly. The first was to insure any of the trust property up to the full insurable value. The second with the consent of the life tenant or the High Court was to insure any of the trust property on a replacement basis as distinct from the full insurable value. The third was to insure against any risk or liability against which it would be prudent for a person to insure if that person was acting for him or herself. 
Quite clearly it can be seen that the main difficulty with this provision is the need for the consent of the life tenant rather than the remainderman to replacement cover. Presumably the reason for that restriction was to reflect what was thought to be the unfairness of the life tenant’s income being reduced by the additional cost of replacement cover. That is now to be changed but the legislation in its present form makes it clear that there is still no obligation on a trustee to insure. That must surely be right because there can be circumstances whereby a cost-benefit analysis justifies a decision to not insure. The absence of a blanket obligation does not preclude trustee liability in the event of failure to insure in circumstances in which the prudence of so doing is clear. That in very general terms touches on this change relating to the power to insure. 
Another change is concerned with the issue of delegation but a limited change is made. I do not think it is of particular circumstance. The general rule is that trustees may delegate what are called ministerial functions—meaning roughly the carrying out of decisions. But unless they are authorised by the trust instrument they cannot delegate the power to decide on the distribution of trust property or the exercise of all those many fiduciary discretions relating to the investment of trust property. The current law as set out in section 29 of the Trustee Act empowers trustees to employ agents including trust corporations to perform what we could call various commercial functions but the power to delegate falls short of authorising the delegation of the trustee’s fundamental decision-making powers. 
It is generally accepted that the present law is defective in two respects. First the line between ministerial and other functions is less than clear. Secondly and more important trusteeship today is an increasingly specialised task which often requires professional skills that trustees may not have. That is particularly so when family members are cast in the role of having to exercise trustee duties. The legislation in its current form deals with that issue too.