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insolvency, Removal of trustees, Settlors, Trustees

I might change my mind

A trust is settled. The settlors are trustees together with an independent trustee.  The settlors’ marriage breaks down and they are no longer able to exercise their trustee powers.  Everyone is busy attempting to remove and replace trustees to wrest control of the trust.  Inevitably the matter comes before the court.

What is the court to do?  Not surprisingly the court will look to the removal and appointment of trustees to ensure a non-partisan approach to the management of the trust for the benefit of the beneficiaries.  This can be pursuant to the Trustee Act 1956, s 51, or the Court’s inherent jurisdiction to supervise trusts for the benefit of all the beneficiaries (not just the settlors).  As noted in Miller v Cameron:

“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 trust 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 ground upon which the jurisdiction may be exercised. But in a case where enough appears to authorise the court to act, the delicate question of whether it should act and proceed to remove the trustee is one upon which the decision of a primary judge is entitled to especial weight.”

The court may also remove any powers of appointment from the settlors or trustees to ensure no furtherance of the trustee tag that might otherwise exist.

These messes arise because settlor trustees (but not exclusively settlor trustees) often cannot appreciate that the obligations owed as a trustee extend beyond their personal benefit.  As a result resources are expended, control is lost and relationships (outside the trust) are compromised.

The answer – likely there isn’t one, which is why the court needs the powers it does.  Perhaps better education of trustees and settlors might help.  Otherwise the court will.

References:

  •  Albrechtsen v Albrechtsen [2014] NZHC
  • Miller v Cameron (1936) 54 CLR 572 at 580.

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