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Removal of trustees, Trustee retirement, Trustees

Putting trustees out to pasture

There is little that is attractive about aging.  However, it is a fact of life that must be faced.  In the life of a trust this fact must also be faced squarely and pragmatically.  Trustees are the “legal” face of a trust and as such own the trust property.  Trust fundamentals.  So far so good.  But what happens when a trustee is past it?

As the multitude of trusts settled in New Zealand come of age, this is a practical issue that needs to faced and dealt with.  While any discussion that starts with “now that you’re getting on a bit” has the potential to end badly, not having these conversations can wind up in court.  This is not because of any breach or other trustee impropriety.  It is because even if the trustee in question has entered into appropriate powers of attorney to address the future possibility of lost capacity, the attorney cannot act under those powers to transfer property from a trustee who has lost capacity to the continuing and any new trustee or trustees.  Trustees who develop dementia cannot execute the role of trustee once they are no longer competent to manage their own affairs and must be removed as a trustee: see Scowen v Scowen.

While LINZ will register a transfer authority signed by an attorney under an enduring power of attorney where the attorney is acting for the donor in his or her personal capacity; LINZ will not register a transfer authority where the attorney would be acting for an incapacitated done in his or her trustee capacity.  This will be the case even when the donor holds the property personally in part and as to a trustee in part: Fynn & Ors v Fynn.

As a result it is necessary to apply to the High Court for an order vesting the trust property in the continuing and any new trustees.  While this is a relatively straight-forward process it takes time and comes at a cost.  And to achive only, what needs to be done, and could have been done.

This legal non sequitor is a matter that has been considered by the Law Commission, which has recommended a more stream-lined and accessible vesting process in its Preferred Approach paper.

In the meantime, as a practical matter, it is important that trustees consider the capacity of their co-trustees from time to time with a view to trustees retiring when they are able to do so and under their own steam.

Where it is necessary to seek a vesting order due to a trustee’s loss of mental capacity, it is important to appreciate that all of the trustees (including a trustee appointed in place of the trustee who has been removed) should be parties to the application: Grazier v Grazier.

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