Trusts are settled with the best of intentions – and given that a discretionary family trust can last for up to 80 years – long term intentions. However, when the settlors fall out, those intentions can fall victim to the relationship fall out.
So what are the trustees to do? There may be trust property that needs to be managed, insurances to pay, taxes to pay, accounts to prepare. What there may not be is a quorum of trustees. Even if there is an independent trustee, that trustee may decide that the best course of action is inaction, to avoid being seen as taking sides. Where a trust deed provides for majority decision making, that course of action may be permissible on its face. However, whether a trustee who chooses such a course of action is in breach of trust, can require consideration. Where the settlors are unable to resolve trust or relationship property matters, the ultimate resolution can fall to the courts.
Trusts cannot function without trustees. Even trustees that are doing a good job, can end up in dangerous territory through acting without the appropriate authority. That said, the court can recognise where there has been no practical option but for the trustee to do so. A practical solution can be the removal of one or more of the “settlor” trustees; and commonly the independent trustee. However, where appopriate the court can order that one or more of the removed trustees are appointed advisory trustees so that they can retain the right for the court appointed responsible trustee to consult with them.
In Little v Little Mrs Little applied for Mr Little to be removed as a trustee following thier relationship break down on grounds that included his failure to account for trust funds that he hasd acted unilaterally, contrary to the terms of the deed of trust. The court was “satisfied that Mr Little has no grasp of the duties owed by a trustee and that he cannot be relied upon to fulfil his obligations as such. In particular, Mr Little has failed to separate his duties as a trustee from the pursuit of his personal interests.” Mr Little’s unilateral actions were in breach of Trust.
Mrs Little was not found blameless, although her failures as a trustee were significantly less than those the court attributed to Mr Little. While Mr Little was the “worst” behaving trustee, the court was not satisfied that Mrs Little would act even-handed between all beneficiaries of the trust. Even though the application to remove Mrs Little was made duing the hearing and without notice, the application was granted. Accoringly, both Littles were removed and a trustee company appointed. In this regard it s noted that even if Mrs Little were not removed, as the deed did not permit a single natural person trustee an additional trustee would have been requirded. However, it was not all down hill for Mrs Little, who recevied a costs award in her favour.
- Trustee Act 1956, s 49, 51, 66
- Little v Little  NZHC 3159