Money can be a compelling temptation.  Some trustees give in to their temptation and misappropriate trust funds for their own personal use.  After the fact such trustees may try to explain their misappropriation as “borrowing”.  However it is of course not “borrowing,” and it can put the future investments and security of trust assets at considerable risk.

What is a Trustee’s role?

With any trust, including Maori trusts established under the Te Ture Whenua Maori Act 1993, a trustee holds lawful title and possession of trust assets in order to manage them.  They owe a legal duty to administer such assets strictly in accordance with the terms of the trust for the sole benefit of the trust’s beneficiaries.  It is their role to ensure that trust assets are not utilised for self-use, or to benefit any other person in violation of the terms of the trust.

When trust funds get “mixed” with a trustee’s personal funds/objectives, beneficiaries (or in fact any person who wishes to have the issue addressed) can challenge the trustee’s actions.  This will usually involve collating evidence of the misappropriation, where possible removing the trustee, obtaining court orders for the repayment of funds by the trustee, and sometimes criminal charges for fraud and the imprisonment of the trustee.

Know your duties to avoid unintentional misappropriation

While we often see reports in the media of deliberate misappropriation or misuse of funds, it is also possible for a Trustee to be misguided as to their role and the limitations of what actions are appropriate or inappropriate, and to unintentionally misuse funds.  For this reason, it is crucial that all trustees are familiar with, and, at all times, in compliance with, all trustee duties. Subject to the special requirements of Te Ture Whenua Maori Act 1993, these are the same for any trustee. 

For trustees of Maori land, the duties are:

  • To acquaint yourself with the terms of the trust deed or order;
  • To adhere to the terms of the trust;
  • To act impartially and fairly to beneficiaries;
  • To exercise the care, diligence and skill that a prudent person would in the same situation;
  • Not to delegate your duties without appropriate express authorisation
  • To act jointly (or possibly by majority in some situations in the case of responsible trustees);
  • To pay trust funds to the right persons;
  • To keep proper accounts and to provide information; and
  • Not to remunerate yourself unless specifically authorised.

Keep an eye on your Trustees

It is also crucial that fellow trustees, beneficiaries and other stake-holders are vigilant in relation to the actions of trustees, including checking financial statements periodically. The more quickly an issue is identified the less likely it is that trust assets will be dwindled with no true recourse (as far as the future growth of trust assets) apart from the chance of small repayments being made over the course of many years.

What should you do if you think a Trustee is misusing trust assets?

If you suspect that a trustee is misusing trust funds or assets, begin by collating evidence of your suspicions.  This will include checking the underlying Trust Deed to confirm the trustee is acting outside the terms of the trust, analysing financial records for the period of alleged misuse of funds, and locating any other supporting documentation, including emails etc, that may substantiate your concerns.  You are then best to seek professional advice in relation to ascertaining the best avenue(s) to pursue the trustee for the breach. 

Kirsten Ferguson
Lawyer
Wellington