Trustee Act 1925

The Act directly affects every person who is a trustee within the broad s 5 definition: “trustee has a meaning corresponding with that of trust; and includes legal representative and the NSW Trustee and a trustee company”. That encompasses express trustees, implied and constructive trustees, executors and administrators after administration is complete (s 11), the NSW Trustee and Guardian, and trustee companies. It also binds persons who exercise trustee-like powers under other statutes or instruments that incorporate the Act by reference.

Beneficiaries are affected because their rights and remedies are shaped by the statutory duties (ss 14A–14C), maintenance and advancement powers (ss 42A–44), protective-trust regime (s 45), and court variation jurisdiction (ss 81, 86A–86C). Purchasers, mortgagees and others dealing with trustees obtain statutory protection under ss 13, 20(2), 30, 39, 46(12), 78(7)–(8) and 82A(3) when they rely on recitals or court orders in good faith.

The Court is the ultimate supervisor. Sections 63, 70–80, 81–90A, 91–93 and 102 give the Supreme Court jurisdiction to give advice, appoint or remove trustees, make vesting orders, vary trusts, relieve from liability, set off investment gains and losses, and control funds paid into court. The NSW Trustee and Guardian has special roles under ss 6(6), 7(2), 8(2), 9(3A), 10(2), 14E, 45A, 47, 54, 64, 101 and 104A.

Regulated financial institutions (banks, building societies, credit unions, life-assurance companies) are affected by the banking, receipt and payment-into-court provisions (ss 50, 54, 54A, 97). Valuers, accountants, agents and advisers engaged by trustees fall within the employment and audit rules (ss 18(7), 51, 53, 14C(2)).

Finally, the Crown and Registrar-General obtain protection and are given administrative duties in relation to vesting orders, caveats and Crown-land entries (ss 9(3A), 12(4), 13(3), 20(2), 39, 46(12), 78(4)).

The cornerstone duty is the prudent-person standard in s 14A(2): a professional trustee must exercise the care, diligence and skill that a prudent person engaged in that profession would exercise; a non-professional trustee must exercise the care a prudent person would exercise in managing their own affairs. This is overlaid by the mandatory annual review (s 14A(4)), the obligation to have regard to the 15 matters in s 14C(1) “so far as they are appropriate”, and the preservation of equitable duties (best interests, no speculation, impartiality, taking advice) in s 14B.

Trustees have positive rights: to invest freely unless forbidden (s 14), vary investments, purchase dwelling-houses for beneficiaries (s 14DA), concur in corporate reconstructions (s 14D), sell, lease, improve, raise money, insure, employ agents, deposit documents, obtain audit and valuation, and apply for judicial advice (s 63). They may accumulate income for infants (ss 43–43A), advance up to one-half of a beneficiary’s presumptive share (s 44), and retire or delegate under strict conditions (ss 8, 64).

Rights are balanced by duties: to act impartially (s 14B(2)(c)), to obtain consent where required (ss 14A(3), 21(4), 22(4), 36(4), 45A), to give notice before distributing (s 60), to account (s 102), and to refrain from self-dealing or speculative investment. Section 14B(2)(d) expressly preserves the duty to take advice, with costs payable from the trust (s 14B(4)).

Beneficiaries have rights to compel proper administration, to maintenance and advancement (ss 42A–44), to protection against breach (s 85 relief does not bar beneficiary claims), and to apply to vary the trust (s 86A). Under s 100A a beneficiary is not liable to indemnify the trustee unless the beneficiary has agreed in writing or the liability arises in another capacity or under an investment trust’s profit-entitlement mechanism.

The Court’s rights include making vesting orders (s 71), conferring additional powers (s 81), excusing breaches (s 85), impounding interests (s 86), approving variations (s 86A), and directing accounts or costs (ss 93, 102).

The Act is not primarily criminal. Enforcement is civil. Breach of the prudent-person or s 14C duties exposes a trustee to personal liability to make good losses (subject to s 85 relief and s 90A set-off). Section 59 implies an indemnity only for acts within the trusts; wilful default removes it (s 59(2)).

Section 85 permits the Court to relieve a trustee wholly or partly if the trustee acted honestly and reasonably and ought fairly to be excused. Section 86 allows the Court to impound a beneficiary’s interest where the breach occurred at the beneficiary’s instigation or with consent.

Failure to comply with court orders under s 102 can be enforced by contempt proceedings. Improper distribution after notice under s 60 does not attract a statutory penalty but leaves the trustee liable to the unnoticed claimant, though the property may be followed (s 60(6)).

Section 90A empowers the Court, in a breach action, to set off gains against losses arising from any investments, mitigating the former “no netting” rule. Section 100A limits beneficiary liability to the trustee, removing the equitable indemnity that previously existed at common law.

Criminal exposure arises only collaterally, for example through the definition of “serious indictable offence” in s 70(3) as a ground for removal, or through general fraud provisions if a trustee misappropriates trust funds.

The Act is expressly linked to a constellation of statutes. The definition section (s 5) incorporates the Probate and Administration Act 1898 (administrator, legal representative), NSW Trustee and Guardian Act 2009 (NSW Trustee), Interpretation Act 1987 (general definitions), Real Property Act 1900 (Torrens vesting, caveats), Conveyancing Act 1919 (registration, mortgagee powers in s 26(1)(d), s 106 leasing rules applied by s 36(5)), Crown Land Management Act 2016, Mining Act 1992 and Offshore Minerals Act 1999 (special vesting rules). The prudent-person test is reinforced by s 6.3 of the Government Sector Finance Act 2018 for certain statutory investments.

Part 4 payment-into-court provisions interact with Supreme Court Rules 1970 Part 78 rule 91 (validated by s 60(8)). The 2020 variation power (Div 3A) sits beside the longstanding expediency jurisdiction in s 81 and the inherent jurisdiction. Section 14B(1) preserves equity and common law except to the extent of inconsistency with the Act or the trust instrument. Section 45 protective trusts interact with the Property (Relationships) Act 1984 and Status of Children Act 1996 definitions of spouse and child.

The Act yields to specific regimes: charitable trusts remain subject to the Charitable Trusts Act 1993; superannuation trusts are primarily governed by the Superannuation Industry (Supervision) Act 1993 (Cth); and the Act does not apply to trusts created by other statutes where that statute expressly displaces it (s 86A(3)(b)).

Section 67 equates delegations under the Act to powers of attorney under the Powers of Attorney Act 2003. Section 61 applies Probate and Administration Act 1898 s 94 to trustee distributions of leaseholds.

The most significant modernisation occurred in 1997 with the Trustee Amendment (Discretionary Investments) Act 1997. Schedule 1 substituted ss 14–14D, inserted ss 14DA–14DB and 14E–14F, repealed the old authorised-list sections 15–16, and amended numerous other provisions. The change replaced a rigid list of authorised investments with a general power (s 14) coupled with the prudent-person duty (s 14A), a non-exhaustive list of 15 factors (s 14C), preservation of equity (s 14B), and specific powers for corporate securities and dwelling-houses. The reason was to give trustees flexibility to invest in modern markets while imposing a clear standard of care and requiring annual reviews.

In 2010 the Courts and Crimes Legislation Amendment Act 2010 amended the mortgage lending ratio in s 18, substituting “two-thirds” with a 95 per cent insured-lending option and updating the qualified-valuer definition. The 2015 amendment further refined the valuer classes.

The Minors (Property and Contracts) Act 1970 and later statutes adjusted age references from 21 to 18 (ss 5, 43, 44).

In 2020 the Succession and Other Legislation Amendment Act 2020 inserted s 42A (maintenance for adult beneficiaries), amended ss 43 and 43A, and introduced Division 3A (ss 86A–86C) allowing the Court to vary trusts or enlarge trustee powers on behalf of persons under disability, unborn or unascertained persons, or discretionary beneficiaries. The explanatory materials indicate these changes were designed to overcome technical limitations on maintenance for adults and to give courts a statutory variation jurisdiction similar to that in the United Kingdom and other Australian jurisdictions, reducing the need for private Acts or reliance on the uncertain inherent jurisdiction.

Also in 2019 the Justice Legislation Amendment Act (No 2) 2019 inserted s 100A, abolishing the rule in Hardoon v Belilios and limiting beneficiary indemnity to cases of express written agreement or specific investment-trust profit entitlements. The NSW Law Reform Commission Report 144 (2018) recommended the reform to clarify and modernise beneficiary liability.

Transitional provisions in Sch 2 preserve the old investment regime for up to two years (or longer if prescribed) after 1997 for trusts not expressly forbidding the new powers, and validate earlier notices under s 60.

The Act itself does not record specific litigation, but its provisions presuppose recurring controversies. Section 63 applications for judicial advice are the routine mechanism by which trustees seek protection before taking controversial steps; the section expressly contemplates questions of management, administration and interpretation. The requirement in s 63(8)–(10) to notify persons whose rights may be prejudiced before distribution reflects judicial concern that ex parte advice not bind absent beneficiaries.

Section 85 relief applications generate controversy when trustees argue honesty and reasonableness after large investment losses. The Court must balance the statutory criteria against the protective purpose of trustee liability. Section 90 requires the Court, when hearing breach-of-trust claims founded on investment decisions, to consider whether the trustee had regard to s 14C factors and formulated an investment strategy. Section 90A’s set-off power has altered the former strict “no netting” approach, reducing the severity of claims where a trustee’s overall portfolio performed adequately.

Vesting-order litigation under ss 71–78 frequently concerns missing or incapable trustees, deceased mortgagees (s 75), or contingent rights of unborn persons (s 72). The conclusive-evidence rule in s 71(7) and the protection for purchasers in s 78(7)–(8) were designed to reduce title challenges.

The new Div 3A variation jurisdiction (2020) is likely to generate applications on behalf of minors or unborn beneficiaries where tax or asset-protection changes are sought. The statutory “benefit” test in s 86B(1) will require careful judicial assessment, mirroring experience under comparable legislation elsewhere.

Protective trusts (s 45) have produced disputes over the meaning of “spouse” (updated in 1999 and 2010 to include de facto and same-sex partners) and the scope of discretionary trusts for issue. The 45A equitable-life-tenant conditions reflect earlier controversy about waste and repair obligations.

Section 81 “expedient” applications have been used to authorise otherwise unauthorised transactions; the 1997 amendments and 2020 Div 3A have reduced the necessity for such applications but have not eliminated the inherent jurisdiction.

Most practitioners assume the prudent-person standard is a simple “reasonable care” test; in truth s 14C(1) lists 15 specific matters that must be considered “so far as they are appropriate”, and a trustee who cannot demonstrate consideration of diversification, liquidity, tax consequences, inflation and the results of the annual review (s 14A(4)) is vulnerable even if the investment ultimately succeeds. The note to s 14A(2) that some statutes deem certain investments to satisfy the test is easily overlooked.

Section 9 vesting on appointment or retirement is automatic for most property but contains six separate exceptions (Torrens land, Crown land, mortgages not under the Real Property Act, registrable conveyances, book-entry securities, leases with covenants against assignment). Failure to register or obtain consent can leave the retiring trustee exposed (s 9(4), (6)) and the “right to call for a transfer” in s 9(7) is cold comfort if the third party refuses.

The distinction between pre- and post-1 March 1926 instruments in ss 43 and 43A still matters for accumulation during infancy; many older trusts continue to be administered under the 1898 Act rules re-enacted in s 43A.

Section 14DA’s power to purchase a dwelling-house for a beneficiary is “without limiting s 14C” but is subject to the instrument and the unfair-prejudice proviso in s 14DA(2). Trustees who retain the house after the beneficiary ceases to reside must justify the decision under the annual-review obligation.

Section 60(7) deems a trustee to have notice of a birth, death or marriage if a certificate under the Births, Deaths and Marriages Registration Act 1995 would have revealed it; the “deemed notice” trap catches executors who distribute without searching the register.

Section 100A’s abolition of the Hardoon v Belilios indemnity is not retrospective to pre-2019 trusts in the sense that accrued liabilities are unaffected, but the section applies to acts or defaults occurring on or after commencement. Trustees of discretionary or unit trusts must now rely on express indemnity clauses or the investment-trust carve-out.

The “two-year, one-occasion only” limit on s 64 delegation, the requirement that two trustees or a corporate trustee remain in New South Wales, and the continuing liability of the delegating trustee for the delegate’s defaults are frequently overlooked when busy trustees seek to travel.

Finally, s 14B(3) preserves rules about exculpatory clauses; a trust deed that purports to exclude liability for breach of the prudent-person duty will be read down to the extent it offends the preserved equitable doctrines. Many modern deeds contain overly broad exoneration clauses that fail when tested against s 14B.

A trustee should begin by reading the trust instrument to identify any contrary intention that displaces the statutory default rules. If none appears, the trustee must formulate a written investment strategy that records consideration of each s 14C factor relevant to the trust’s purposes, the beneficiaries’ needs, the size of the fund, risk tolerance, liquidity, tax, inflation and the obligation to maintain real value. The strategy should be reviewed at least annually (s 14A(4)) and whenever there is a material change in circumstances.

Diversification is not mandatory but must be considered; a trustee who places the entire portfolio in a single asset class without recording why that is appropriate to the trust’s circumstances risks breaching s 14C(b). Professional trustees must document the higher standard of care they have applied (s 14A(2)(a)).

When exercising powers of sale, lease or improvement, the trustee must obtain any required consents (ss 21(4), 36(4)), comply with the precise formalities in s 9 for vesting, and register instruments under the Conveyancing Act 1919 where necessary (s 12). For mortgage lending, a qualified valuer’s independent report is compulsory and the loan must not exceed the statutory ratios unless insured (s 18).

Maintenance and advancement decisions require regard to the beneficiary’s vested or contingent interest, the existence of other funds, and the accumulation rules for infants (ss 42A–44). Protective trusts (s 45) must be administered strictly according to the statutory determination events.

Before any distribution, the trustee must give notice under s 60 and allow the prescribed time for claims. If in doubt about any management or interpretive question, the trustee should apply for judicial advice under s 63; acting in accordance with that advice (absent fraud or non-disclosure) provides statutory protection.

Records of all decisions, advice obtained (s 14C(2)), reviews, and the basis for any set-off of gains and losses should be kept. Agents may be employed but the trustee must select them prudently and remain liable for their defaults if not chosen in good faith (s 53).

Where the trust holds Torrens land, Crown land, leases or book-entry securities, the trustee must ensure that the specific vesting, consent or registration steps in ss 9, 12 and 78 are completed; failure to do so can leave title defective and the trustee personally liable.

For trusts created before 1 March 1926, the trustee must check whether the old maintenance and accumulation rules in s 43A apply. For all trusts, the trustee should confirm that the 1997 investment regime has been adopted or that the two-year transitional period (Sch 2 cl 4) has expired.

Finally, the trustee should maintain adequate insurance (s 41), keep documents in safe custody (s 50), obtain audits when appropriate (s 51), and be ready to account to the Court or beneficiaries (s 102). Compliance is not a mechanical checklist; it requires ongoing, documented, prudent decision-making calibrated to the particular trust’s terms, the beneficiaries’ circumstances and the statutory factors. When in doubt, the safe course is to seek s 63 advice before action.