How do I remove a trustee of my family trust?

12 June, 2013 | Peter Smith

We often hear that people think that a trustee of a family trust can simply be removed from the trust if the other trustees vote and agree on the matter. This is not the case.

To complete the removal of a trustee, the process must not only be followed correctly, but steps must also be taken to ensure that the removed trustee is taken off the title of any property owned by the trust and that the removed trustee is released from all liability under the trust (for example if the trust has signed a guarantee in favour of a bank).

It is not widely appreciated, that all trust property is held in the names of the trustees (and NOT in the name of the trust).  This means that a change of trustee requires a transfer of trust properties from the retiring trustee to the new trustee.How a trustee can be validly removed depends on the wording of the trust deed itself.

Power of appointment and removal of trustees

Standard discretionary family trust deeds often give the power of appointment and removal to the settlors – these are the people that originally set up the trust.

If a settlor wants to exercise that power, they can sign a deed (together with any other continuing trustees and any new trustee(s) if appointed). Once the deed is executed, that deed can then be used as the base document to effect the removal of that trustee from the title of any property owned by the trust. Other documents are also required to transfer property, including an authority and instruction form signed by all trustees – including the trustee who is being removed.

If a person who has the power of appointment and removal dies, that power can be transferred in their Will. So if you have the power of appointment and removal of a trustee, you should make sure your Will contemplates who you will transfer that power to. If you don’t specify, then this power automatically transfers to the executors of your Will.

The Court’s power of appointment and removal of trustees

If there is a dispute over the appointment or removal of a trustee, then it is necessary to make an application to the Court under the Trustee Act 1956 to resolve the dispute. Any Court application is going to be very time consuming, expensive and in the end, may not result in the outcome that the applicant wants.

Court considerations before removing trustees

It has been held (in the case of Wallace v Naknok) that the Court has an inherent jurisdiction to remove trustees if the welfare of the beneficiaries and the welfare of the trust property requires the removal. This test has a very high threshold and if the threshold is not met, the trustee subject to the removal application may simply be allowed to remain as a trustee.

The exercise of the power of appointment and removal of trustees must be done for proper purposes. For example, a settlor cannot exercise the power of appointment in such a fashion as to advance the settlors’ financial interests over and above those of the other beneficiaries. On the other hand, solicitors or accountants are often professional or independent trustees and it is usual that a change in solicitor or accountant may result in change of trustee to the new solicitor or accountant.

Death of a Trustee

If a trustee dies when there is no power of appointment and removal, the assets of the trust automatically transmit by survivorship to the remaining trustees. If the death of the trustee causes the number of trustees to drop below the minimum required by the trust deed, a new trustee can be appointed if the trust deed provides a mechanism for appointing a new trustee in this situation. If there is no mechanism for appointing a new trustee in the deed, then an application must be made to the Court, in this case to appoint a new trustee.

We recommend that you review your existing trust documentation to ensure that the power of appointment and removal of trustees is properly provided for.

For assistance with reviewing your trust documentation or to remove or add a trustee, please contact experienced trust solicitor Peter Smith, by phone on 09 837 6882 or email peter.smith@smithpartners.co.nz

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