NZ Memorandum of Guidance to Trustees

If you are setting up a family trust, it is a good idea to fill in a Memorandum of Guidance for the Trustees of your Trust.

The Memorandum sets out specific wishes that the Settlor(s) have about how the Trust should be administered.

The Memorandum isn't legally binding on the Trustees, meaning that they can ignore it if they wish. However, given that the Settlor(s) usually has the power to “hire and fire” Trustees, it is common for the Trustees to pay attention to the Memorandum of Guidance written by the Settlor(s).

The Memorandum is generally kept confidential between the Settlor(s) and the Trustees. HOWEVER, there is a risk that the Memorandum will be shown to the Beneficiaries.

It is likely that over time, the Settlor(s) wishes for their Family Trust will change. It is important to review the Memorandum every couple of years, update it if things change and give the Trustees any updated Memorandum.

This Memorandum of Guidance contains the information that the Settlor(s) usually give the Trustees when they first set up a Family Trust. That information includes the following:
- that the needs of the Settlor(s) children take priority over all other beneficiaries;
- that, as much as possible, distributions from the Trust (eg money given to beneficiaries by the trustees) should be from the Trust's income, not from selling its assets;
- that the Trust should be kept going until the youngest of the Settlor(s) children reach a certain age (when they can look after themselves).

Settlors can use the format of this Memorandum to produce updated Memorandums in the future.

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This document has been prepared by Cavell Leitch