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Relationship Property, Removal of trustees, Trustee liability, Trusts

Dealing with delinquent trustees

Deeds of trust contain the rules by which trustees are to operate.  However, what are trustees to do if one or more trustees acts in defiance of these rules?  While hind sight is 20/20 the starting point has to be to not actually let a trust get into a position where one trustee can call the shots.  Ensure no one trustee has signing rights on trust accounts, develope protocols so no one trustee can deal with trust property.  Let’s say no-one thought about that at the start and one trustee has gone feral leaving trust income unaccounted for and returns not filed. 

Often these situations result in lots of hand wringing and threats but not much actually doing.  Often as a result of simple economics or the belief that ultimately the errant trustee or trustees will toe the line.  sometimes they do, sometimes they don’t.  While they don’t it can leave the co-trustee or co-trustees in a somewhat compromised position.

One slightly unusual approach is to apply for summary judgment.   In a recent case where that happened the court acknowledged the novelty of the procedure adopted.  Amongst other things the trustee that brought the proceedings sought the removal of all trustees, appointment of new independent trustees, an order for accounts to be prepared and returns filed, and an order that the trustee who brought the proceedings had acted reasonably. 

While few of the orders sought were made, the plaintiff trustee got the court’s attention and certain orders were made regarding costs and the management of trust assets.

The case under consideration highlights the practical and legal obstacles that can dog trustees once the trustees  lose collective control of a trust’s assets.   The case also highlights, yet again, the problems that can flow when settlors’ relationships sour.

References:

Smith v Penney and Simunovich [2013] NZHC 1981

 

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