Trustees, even professional trustees, do not always appreciate what is required to retire as a trustee, or who needs to be notified. Often retirement is treated quite casually and a trustee may believe, quite incorrectly, that notifying the remaining trustees that he or she has retired is sufficient.
This lack of formality or appreciation of what needs to be done may explain in part why trustees’ failure to notify the IRD of their retirement is one of the leading sources of claims under professional indemnity policies.
How does a trustee retire?
To retire a trustee should first check the terms of the trust deed to see whether it makes provision for the retirement of trustees. Where the deed provides for this it is important to actually follow the terms of the deed.
Where the deed of trust does not expressly permit retirement the Trustee Act 1956 should be referred to. Where that is the case a deed of retirement of trustee will need to be prepared and signed by the retiring, continuting and new trustees as relevant. Care is required to ensure compliance with the Trustee Act and that there is a sufficient number of trustees.
If a new trustee is not being appointed in place of the retiring trustee (and retirement is in accordance with the Trustee Act), the continuing trustee(s) and the person with the power to appoint and remove trustees must agree to the retirement of the trustee. Even with consent, unless only one trustee was originally appointed, a trustee cannot retire unless there will be at least two continuing trustees or a company is appointed as trustee.
What if there are objections to the trustee’s retirement?
As the retirement of a trustee can be expensive (especially where the trust has significant property investments, all of which will have to be transferred from the retiring trustee to the remaining or new trustees) the other trustee(s) may not be agreeable to the retirement. There might also be opposition to retirement where the trustees have liability concerns.
Where retirement cannot be achieved by agreement, a trustee who wishes to retire can give notice of the intention to retire to any co-trustees and any person with the power of appointment and removal of trustees and pass the trust’s accounts to the Registrar of the High Court or can ask the High Court to appoint a new trustee. This may seem an extreme response. However, given that a trustee remains personally liable until the trustee has retired this course or action may be preferable than to remaining liable both jointly with the other trustees and personally.
Once a trustee has retired the trust’s property must be transferred to the continuing and / or new trustees. All the trustees must sign transfer documents for land and shares and any other property owned by the trustees.
Any signing authorities with banks or other institution need to be updated.
The retiring trustee must ensure that the IRD is advised that the trustee has retired.
If the trust is GST-registered, the retiring trustee must also give written notice of the retirement to the Commissioner of Inland Revenue. A trustee will remain liable for GST until the IRD has been notified in writing that the person is no longer a trustee. Retirement will not avoid any liability incurred before the trustee’s retirement.
The retiring trustee should also advise the trust’s beneficiaries, investment adviser, accountant, lawyer and any other party the trust has had dealings with that the trustee has retired.