Understanding the Roles in a Family Trust

(and why getting them wrong causes problems later)

Family trusts are often described as if they’re simple containers that hold assets. In reality, a trust is a legal relationship between people, each with defined roles, responsibilities, and limits.

When things go wrong with trusts, it is often a combination of factors.  One of them being that someone has misunderstood their role, assumed powers they do not have, or failed to keep the structure aligned with how the family now lives.

This article explains the key roles in a New Zealand family trust, what each role actually does in practice, and where problems tend to arise.

The Settlor

The person who creates the trust — and then steps back

The settlor is the person (or people) who establishes the trust and contributes the initial trust property. This is often a nominal amount to bring the trust into existence, followed by later transfers  of property and/or investments by way of gifting or loans.

Once the trust is properly formed, the settlor’s role is complete.

This point is often misunderstood.

What the settlor does

• Establishes the trust by signing the trust deed

• Contributes the initial assets (and often later assets of gifts or loans)

• Sets the original framework and purpose of the trust

What the settlor does not do

• The settlor does not “own” trust assets once they’re transferred (unless owed a debt by the trustees)

• The settlor should not try to control trust decisions once the trust is operating (but can provide a letter of wishes or memorandum of guidance to the trustees)

• The settlor role have any powers over how the trust operates unless they have reserved powers to themselves in the trust deed

In many family trusts, the settlor and trustee are the same person at the beginning. That’s not unusual, but care is required — especially if the trust is later scrutinised for creditor, relationship property, or Residential Care Subsidy purposes.

Common problem:
Settlors continuing to treat trust property as their own, operating the trust without proper trustee resolutions or regard to their role as trustees. This can undermine the trust, particularly for creditor purposes, but also relationship property or Residential Care Subsidy purposes.

The Trustees

The people who actually run the trust

Trustees are the legal owners of the trust assets which means they hold trust assets and make decisions about them, but always for the benefit of the beneficiaries and in accordance with the trust deed.

Being a trustee is not an honorary title.  It carries real responsibility and potential personal liability so should be held by someone who understands and accepts the role and burdens placed on them, usually for no payment.

What trustees do

• Manage and invest trust assets

• Decide whether and when distributions are made

• Maintain trust records, resolutions, and financial statements

• Act unanimously unless the trust deed provides otherwise
• Comply with mandatory duties under the Trusts Act 2019

Trustees must act:

• Honestly and in good faith

• For proper purposes

• In the best interests of beneficiaries

• Consistently with the trust deed

• Not for their own benefit or profit (unless the trust deed specifically permits this)

Trustees are not free to do whatever they like just because the trust is a “family trust”.  They must adhere to the terms of the trust deed and the Trusts Act 2019.

Common problem:
Trustees who assume that because “it’s a family trust,” normal legal rules don’t apply — or that decisions can be informal.  Unfortunately, we hear from many settlors/trustees that they were advised when the trust was first set up that they could operate in this way.  This is incorrect and is often the cause of many problems we see.

The Appointor

The power to change the trustees

The appointor is the person who is seen as having the control over the trust as they have the power to appoint and remove trustees. This role is often underestimated; it can be the most powerful position in the entire structure so care must be taken when considering who will hold this role in future when the original appointor dies.

The appointor does not usually manage assets or make trust decisions. Their influence lies in deciding who gets to be a trustee.

What the appointor does

• Removes trustees

• Appoints new or replacement trustees

• They may also have the powers to

  • appoint and remove beneficiaries in the trust

  • consent to variations being made to the terms of the trust deed

This role becomes especially important in:

• Blended families

• Second relationships

• Trusts that outlive their original settlor

Common problem:
Following the death of the original appointor, the Appointor role may fall into unintended hands - or it could be held by a surviving spouse who finds themselves in a relationship with new and domineering partner who tries to assert control over the Trust and be appointed as a trustee and/or beneficiary.  

Discretionary Beneficiaries

People who may benefit, but have no absolute entitlement

Discretionary beneficiaries are individuals or classes of people whom trustees may consider when making distributions. They have no automatic right to receive anything.

What discretionary beneficiaries can receive

• Income or capital distributions

• Use or occupation of trust property (if permitted)

What they cannot do

• Demand distributions

• Direct trustee decisions

• Claim ownership of trust assets

Trustees must consider beneficiaries, but they are not required to treat them equally or distribute to all of them.

Common problem:
Beneficiaries assuming that being named in the deed guarantees a future payout.

Final Beneficiaries

Those who receive the trust assets when it ends

Final beneficiaries receive what remains once the trust is wound up, usually at a vesting date or following the death of specified individuals.

They have no involvement in day-to-day trust administration.

This role is particularly important where:

• Trusts were drafted decades ago

• Family relationships have changed

• The original intent has not been revisited

Common problem:
Final beneficiaries who no longer reflect the settlor’s intentions, simply because the deed was never reviewed.  This is an issue because an attempt to change the Final Beneficiaries could result in unintended tax consequences for the trust.  

Why These Roles Matter

Each role is designed to for very specific reasons:

• The settlor creates the trust — then steps away unless they have reserved powers

• Trustees manage and decide, and have personal liability if things are not done properly)

• The appointor oversees trustee suitability, and may have powers to change beneficiaries and certain terms of the trust deed

• Beneficiaries benefit, but do not control

Problems arise when the roles are not properly understood or when no one steps back to check whether the structure still fits the family’s original or current reality.

A trust review is often less about changing the deed, and more about making sure there remains a need for the trust, and if there is, that the people and powers align with the trust’s purpose and the family’s current reality.

A final thought

If you’re involved in a family trust — whether as a trustee, beneficiary, appointor, or settlor — understanding your role is essential. Trusts are not static documents. They are living structures that need to be actively administered and periodically reviewed.

Clarity around roles is often the difference between a trust that quietly does its job, and one that becomes a source of confusion or conflict later on.

Get in touch as we can help you carry out a review or help understand what an annual trustee meeting should cover.