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Trustee Act, Trustee retirement, Trusts, Wills

Thinking ahead

Discretionary family trusts can last, at present, for up to 80 years.  While the Law Commission has suggested this should be extended to 150 years, in many circumstances just 80 years is too much.  Trusts take management and prospective planning, and sometimes good management means making practical decisions that people might not like.  It also means thinking ahead to a time when the current trustees have lost capacity or have died.  Where possible it is wise (and cost-effective) to replace trustees while the trustee still has capacity.  Prudence also dictates that care is taken to ensure there is always a person with the powers of appointment. Sometimes time, or complacency de-rail the best of plans.  The case of Stewart and the Strathaven Family Trust provides a useful example of the practical issues that arise when there are no surviving trustees.  The original trustees were Mrs Stewart and Mr Brown.  After Mrs Stewart died a further trustee was appointed.  At this time the settlor who was also the appointor was still alive.   Subsequently the new trustee died, the appointor died, and two years later Mr Brown died.  No new trustees were appointed.  The appointor did not leave a will and no new trustee was appointed.  Over four years later the matter was brought before the court.  As one deceased trustee had a will her personal representative could be appointed a trustee (Trustee Act, s 43).  This left the trust with one trustee.  Another was required in accordance with the terms of the trust deed.However, there was no personal representative for Mr Brown.  Accordingly an application was made pursuant to s. 51 of the Trustee Act. The trust had real property and a bank account that could not be operated or dealt with until a further trustee was appointed. The case provides a real life (and not) example of the need to think ahead when managing trusts and the importance of having settlors and trustees make wills that work with trusts. While it is important that the Trustee Act provides a back stop – court applications come at not insignificant cost.  Cost that could be avoided with some more forward-looking management. Care is also required to confirm the correct process.  An application for an order for removal of a trustee is not an application listed in r 19.2 and therefor an application for permission to the Court under r 19.5 is required. Under r 19.5(1) the Court may, in the interests of justice, permit such a proceeding to be commenced by an originating application.  Where a trustee has lost capacity and cannot meaningfully participate in the proceedings grounds will likely be made out for the substantive application to proceed as an originating application.

Appointors

It can also, from time to time, together with or separately from an application to remove and appoint trustees, be necessary to seek the “transfer” of powers of appointment.  However, when doing so, unless intended, it is important not to seek to have the powers of appointment unintentionally enlarged.  For example where a settlor’s powers of appointment are to vest in another party – it may be appropriate for the appointment to be limited to the settlor’s life so that that appointment does not then infringe or compete with any appointments made in the settlor’s will.  See Lance v Lance.

References:

  • Stewart and the Strathaven Family Trust [2014] NZHC 1768
  • Trustee Act 1956, s 43, 51
  • In the Estate of James Heslop [2014] NZHC 2489
  • Lance v Lance [2014] NZHC 2846

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