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Agreement for Sale and Purchase, Removal of trustees, Trustee Act, Trustees

An inconvenient truth

It is commonly said that there is no symmetry between trust law and tax law.  There is a similar disconnect in respect of the appointment and removal of trustees, powers of attorney contained in a deed of trust, regular and enduring powers of attorney.  This topic has been recently explored in the context of dementia and aging trustees (see Putting Trustees out to Pasture), which considers the practical issues that arise from the fact that trustee powers cannot be exercised pursuant to an enduring power of attorney.

But what about powers of attorney contained in a deed of trust?

Consider the situation where it is necessary to sell trust property but one trustee will neither agree to the sale or properly promote his objections.  The appointors remove the trustee so that the sale can proceed.   The now removed trustee will not sign the transfer documents.  The deed contains a power of attorney that provides that:

“Power of Attorney: To facilitate the vesting, transfer or assignment of the assets comprising the Trust Fund to the Trustees for the time being, following the exercise of the power of removal, every person, at any time being a Trustee, irrevocably appoints the person having the power of removal to be their attorney to do all things necessary to vest, transfer and assign all property forming the Trust Fund and no person shall be concerned to inquire of or question the propriety or otherwise of such vesting, transfer or assignment.”

Can the trustees act under this power of attorney to transfer the trust property from the retired trustee to the remaining trustees?  Regrettably, no.  Land Information New Zealand (LINZ) will not accept a power of attorney in a deed of trust as authority to act on behalf of a trustee.

Even if there is a person with the trustee’s power of attorney, (presuming that it has not been revoked in the falling out), an ordinary power of attorney can only be utilised in a trustee capacity when the trustee is overseas or temporarily incapacitated.  And if you are thinking, well who will check?  Guess again.  Any enquiry about the dealing will require evidence of a trustee’s absence from New Zealand or temporary incapacity as part of an audit enquiry.  Where appropriate authority cannot be evidenced in the first instance further dealings with the property can be prevented while the matter is investigated.  Consider then the possibility of having removed a trustee without sufficient authority (and the consequences to follow) and still not being able to transfer the title to the new purchaser.

The solution, a vesting order under s 52(1)(h) of the Trustee Act 1956: J & E Ferguson Family Trust.  Also see Brown & Anor as trustees of the JHF and AH Brown Family Trusts v Creed.

Also see Willy Butler Corporate Trustee Limited v Willy Butler and Lipscombe v Lipscombe.

While in appropriate circumstances (for example undue delay or prejudice) this can be on a without notice basis under the High Court Rules, a High Court application and the related expense is still required.

This is the point that a pithy alternative should be tossed into the mix. However, the legal reality is that the inconvenient truth is that unless signed “exit” authorities can be held (and this raises a plethora of other issues), the removal of an unwilling trustee takes careful management. Where the removal is subject to time pressures, extreme care is required by practitioners to ensure compliance with LINZ rules.

Prevention being better than cure, the only sensible bon mot to take away perhaps is the need to carefully select one’s trustees. As for some trustees the power they hold is that to out stare in a blinking contest and to hold their breath the longest. While some trustees will appropriately hold their ground and refuse to embark on a course of action that is not in the trust’s best interests, sometimes the interests in question are closer to home and less supportable.

Where matters are not dealt with in a timely manner urgent proceedings can be required where there is the need for the sale of trust property: Cousins v Cousins.  While it appears that the court is sympathetic to the situation – prevention is always better (and cheaper) than the cure.

References:

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