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Removal of trustees, trust, Trust review, Trustee retirement, Trustees, Trusts

Using enduring powers of attorney to exercise trustee powers

The issue of incapacitated trustees is not a new one.  Trustees continue to age and many do not retire when they can still elect to do so.  This leaves the issue of removing incapacitated trustees and transferring property held by them to continuing and new trustees.

While it is generally accepted that an attorney under an Enduring Power of Attorney (EPA) cannot exercise the donor’s trust powers it is less well understood whether the attorney can retire a trustee or exercise that trustee’s personal powers of appointment to remove an incapacitated trustee (including the attorney removing person the attorney is acting for).

Who can sign transfer authorities for LINZ purposes is also not entirely well understood.  For this reason the decision in Godfrey v McCormick should be compulsory reading for advisers working in this space.  The facts are straight-forward.  One trustee (Mrs Godfrey) has dementia.  Her husband Mr Godfrey is her attorney under an EPA and pursuant to this he purported to retire Mrs Godfrey as a trustee, the matter going before the court only for a vesting order.

An EPA does not give the attorney the power to act for the donor  as a trustee. The powers under an EPA are governed by Part 9 of the Protection of Personal Property Rights Act 1988 (PPPRA). The Act provides that the donor of an EPA can authorise the attorney to act generally in relation to the donor’s property, which includes “… any real or personal property; and includes any interest in any property; and also includes any money, any business or undertaking, and any right or power exercisable in respect of any property”.

As noted by Nation J:

“[9] While there appears to be no judicial authority on the matter, the more common view is that property the donor holds on trust is not included in “his or her property” and, as such, trustee powers are not exercisable by a donee of an EPA.

[11] The Law Commission, in its review of the law of trusts, also appears to agree that this is the current state of the law. It advocated for legislative change to empower holders of EPAs of incapacitated trustees to remove them and, where necessary, appoint a replacement.

[12] This is also the position of LINZ, who has recently made it clear that they will not accept documents executing the transfer of trust property when they are signed by an attorney on behalf of a trustee who has lost capacity. As a result, this Court has in recent times seen an increasing number of applications for orders vesting trust property where a trustee has lost capacity to act.

Nation J then goes on to say that trustee powers are outside the scope of EPAs and that while it “… could be argued that the power to resign as trustee is not itself a trustee power. If this is the case, then the duty not to delegate would not apply and the PPPRA would not have to be construed as an exception to the duty in order to permit an attorney to exercise the power.”

A power to resign is noted as being fundamentally different from a dispositive power as the result changes the status of the trustee, not the trust.  Regardless as noted at [19]:

[19] Nevertheless, the EPA is a statutory creation and, even if the duty not to delegate does not apply, it must be shown that the PPPR empowers the holder of an EPA to make decisions regarding the donor’s trustee status. In my view, this cannot be shown. An EPA empowers the donee to act in relation to the donor’s property. Even if the power to resign is not a trust power per se, if it is a power relating to property at all, then it is a power relating to trust property.

[20] For all these reasons, the PPPRA must be read as not extending to an attorney the power to act for a trustee in relation to trust property.

[21] All this means that, rather than rely on the retirement of Mrs Godfrey as a trustee through the way Mr Godfrey purported to exercise powers under an EPA, the applicants should have sought an order from the Court removing her as a trustee on the grounds she was no longer able to act as a trustee. Because there is no dispute that she is unable to act as a trustee, because the remaining trustees want to recognise this and because no other person’s rights will be affected, I am amending the application so that such an order is sought.”

While there may be some question as to whether an attorney under a POA can exercise those powers to exercise powers of appointment (vs retirement) the case provides a useful and considered statement of a position that could largely be avoided with more forward planning.

References:

  • Godfrey v McCormick [2017] NZHC 420

Discussion

One thought on “Using enduring powers of attorney to exercise trustee powers

  1. I wonder whether the result would have been different had the trust deed specifically authorised an EPA attorney to so act under a wide delegation clause.
    A trustee’s powers come firstly from the deed & I don’t think this fact situation and position has been argued yet.

    Posted by Alan Bruce | March 31, 2017, 3:56 pm

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