The appointment as trustee involves significant responsibility and, in some circumstances, it is inthe best interests of the beneficiaries for a trustee or trustees to be removed.
Most commonly a trustee will retire or can be removed pursuant to a power of removal where animosity or other concerns may cloud judgment. However, in some circumstances, due to perhaps there being no power of removal or where a trustee simply refuses to act, it can be necessary to seek the court’s assistance to remove a trustee.
In the context of a testamentary trust, it can be appropriate for some trustees who foresee likely future issues to renounce an appointment as executor and trustee.
For whatever reasons, where issues arise the outcome sought will not be automatically achievable, for although there are clear statutory provisions these are discretionary rather than prescriptive.
Two recent High Court decisions provide useful considerations of the matters the court will take into account when deciding whether a trustee should be removed. One case considered is in the context of a family trust following a relationship breakdown; the other a testamentary trust where sibling beneficiaries sought the removal of the sole sibling trustee.
Removal of trustee from a family trust following relationship break down
Following a marriage breakdown, a trust settled by the parties was unable to be administered when one of the partners refused to participate in the administration of the trust. The trustees applied, amongst other things, for an order removing both partners as trustees and appointing an additional independent trustee (the deed of trust requiring a minimum of two trustees).
The legislative jurisdiction for considering the request was pursuant to the Trustee Act, s. 51, which as well as allowing the court to appoint a new trustee also allows the appointment of a trustee in substitution for a trustee who, amongst other things has “misconducted himself in the administration of the trust.” By way of aside it is noted that even where the legislative provision does not assist, the High Court also retains an inherent jurisdicition to remove and appoint trustees (see below regarding the removal of a trustee from a will trust).
In agreeing to the requested removal and appointment, the High Court considered the applicable principles set out in Miller v Cameron, where Dixon J outlined the matters to take into account in exercise of the discretion pursuant to s.51 of the Trustee Act:
“The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property, and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove a trustee the court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary. A trustee is not to be removed unless circumstances exist which afford sound ground upon which the jurisdiction may be exercised.”
In the case in hand the court found that the absence of one trustee and his refusal to engage with the trust or respond to proceedings equated to misconduct in the administration of the trust in terms of s 51(2)(a) and, in accordance with the principles outlined in Miller v Cameron, the removal and replacement sought should be ordered.
This outcome can be contrasted with that in Wallace v Naknok where the High Court refused to remove a trustee pursuant to s. 51 of the Trustee Act.
Removal of trustee from a testatmentary trust
In the context of a testamentary trust, although the core issue remains the welfare of the beneficiaries, the mechanism and matters to take into account are dealt with somewhat differently. This is demonstrated in a recent case where the majority of the beneficiary siblings opposed the appointment of one sibling as executor and trustee.
The legislative jurisdiction to remove a trustee of a will estate is pursuant to the Administration Act, s. 21, which provides that “Where … it becomes expedient to discharge or remove an administrator, the Court may discharge or remove the administrator, and may if it thinks fit, appoint any person to be administrator in his place …”
By way of background it is noted that the distinction between administrator/executor and trustee although important, is often indistinct and the roles are often dealt with as one and the same, which they are not. Essentially the administrator or executor probates the will or obtains the right to administer an intestacy, while the morphosis to trustee relates to the administration of the resultant will trust.
Although, as noted, the Administration Act provides for the removal and substitution of trustees, the discretion to do so is coloured by the application of the High Court’s inherent jurisdiction to do the same, without recourse to legislated permissions. However, the Crick decision confirms that the inherent jurisdiction relates to trustees and not administrators, and where the person whose removal is sought is an administrator, the correct course of action is to seek removal pursuant to the Administration Act, s 21.
Section 21 provides that where “… it becomes expedient to discharge or remove an administrator” the court may do so.
The principles that apply in the application of s 21 provide that:
- the court has substantial jurisdiction, which is heavily influenced by the facts
- the court has a duty to ensure trusts and estates are properly administered
- the welfare of the beneficiaries is the primary consideration
- hostility between adminstrators, trustees and beneficiaries will only provide grounds for removal if the hostility prejudices the interests of beneficiaries.
However, the identified principles alone will not provide the answer. An overarching question that remains to be considered in light of the legislative reference to expedient, is whether the removal of the administrator will provide a “suitable, practical and efficient means of advancing the interests of the estate and its beneficiaries.”
The wishes of the will-maker must also be taken into consideration and the decision regarding the appointment of executor is not to be lightly overturned.
The application of the legislation and the principles that guide it will depend in all cases on the particular facts. However, the decsions will turn not on the facts, but the consequences of these facts and the effect of them on the estate in question.
Usefully, where it is expedient to remove and replace an executor, the court will do so.