The trustee's role
Trustees play a vital role in managing a family trust. As custodians of trust property, they are entrusted with making sure the trust operates in accordance with its objectives and maintains a high level of financial responsibility. This includes keeping accurate and up-to-date accounting records that document their financial transactions and decisions.
The legal bit
The trustees' responsibilities to maintain the trust's accounting records are governed under the Trusts Act 2019 and the Trustee Act (Requirements and Notices) Regulations 2003. These regulations detail the minimum requirements for trustees to maintain accounting records to provide a clear and concise picture of the trust's financial position.
The accounting requirements
First and foremost, trustees must keep complete and accurate records of all financial transactions within the trust. This means documenting all assets and liabilities, all investments and disbursements, and any adjustments or changes to the trust's financial position throughout the year. The records must also indicate the individuals or entities involved in these transactions and the purpose for which they were made.
Additionally, the trustees must be able to provide clear documentation detailing their rationale for any financial transactions or decisions made on behalf of the trust. This includes any investment decisions or distributions made to beneficiaries. Trustees must keep careful records of how they evaluated these decisions, including the risks and rewards associated with each one.
Trustees must also keep detailed records of any income earned by the trust through investments, interest, or other means. Income must be documented separately from other trust transactions, and the trustee must provide evidence that they have taken steps to ensure the income has been accounted for.
It is also important that trustees regularly review their accounting records to ensure they are accurate and complete.
Why it's important
Keeping accurate accounting records is a critical responsibility of trustees in New Zealand family trusts. Not only is it a legal requirement, but it is also essential for maintaining the trust's financial integrity and achieving its objectives. Trustees who fail to take this responsibility seriously risk legal action being taken against them and could ultimately harm the trust's beneficiaries.