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appointment and removal of trustees, Vesting order

Harder than it looks

Vesting orders are commonly required for trusts and estates where one or more trustee has lost capacity and the assistance of the court is required to regularise property ownership.  While generally routine, each application depends on its own facts.  Lester AJ’s decision in Smith v Walsh is a good example of the nuances of incapacity and what this means in the terms of multiple executor appointments that are compromised through incapacity.

The background facts to Smith v Walsh are as follows:

  • Christina, as her mother Brenda’s executor, owns a 1/2 share in the property at 39 Tasman Road (the Property)
  • Christina and her brother Peter own the other 1/2 share of the Property as executors of Christina and Peter’ father, Arthur’s estate
  • Peter has lost mental capacity and can no longer carry out the duties of an executor

While the application was largely straight-forward, the concern for the Court was the submission that “… Christina is the sole executrix and trustee of the estate of her late mother, Brenda and that Brenda was at that date of her death, the last surviving competent executor and trustee of the estate of her late husband, Arthur.”

As noted at [25] the application was based on the proposition that as a result of Peter losing capacity s 13 of the Administration Act (set out below) is triggered.  However, as a matter of law, Peter is not removed as an executor of Arthur’s estate simply by virtue of losing capacity.

Section 13 of the Administration Act 1969  provides: 

13 Executor of executor represents original testator
(1) An executor of a sole or last surviving executor of a testator shall be the executor of that testator:

provided that for the purposes of the foregoing provisions of this subsection a person who does not prove the will of his or her testator shall be deemed not to be an executor notwithstanding his or her appointment as such by the will, and in the case of an executor who on his or her death leaves surviving him or her some other executor of his or her testator who at the time of the testator’s death has not proved but who afterwards proves the will of that testator, it shall cease to apply when probate to the surviving executor is granted.

(2) So long as the chain of representation is unbroken, the last executor in the chain is the executor of every preceding testator.

(3) The chain of representation is broken by—

(a) the failure to leave a will; or
(b) the failure of a testator to appoint an executor; or
(c) the failure to obtain probate of a will,—

but is not broken by a temporary grant of administration if probate is subsequently granted.

(4) Every person in the chain of representation to a testator—

(a) has the same rights in respect of the estate of that testator as the original executor would have had if living; and
(b) is, to the extent to which the estate of that testator has come to his or her hands, answerable as if he or she were an original executor.

Dobbie’s Probate and Administration Practice provides at 36.3.2 that:

Where two or more executors prove a will and one loses mental capacity, probate is recalled and a fresh grant made to the capable executor.

As noted at [26] of Smith v Walsh:

[26] The Court is empowered by s 21(1) of the Administration Act 1969 to remove an administrator including an executor if they become incapable of acting or unfit to act. The existence of such power confirms removal is not automatic upon a loss of capacity.

The point was made by Lester AJ that while he presumed that the administration of Brenda and Arthur’s estates had passed from the executor phase to the trustee phase (for the significance of this see Transition from executor to trustee.

The issue for the court was that a presumption had been made that Peter was removed as executor by virtue of his incapacity.  As noted at [31]:

I do not see how Peter could remain as a trustee of the estate as while the vesting order, if it was granted in isolation, would put the title into the applicant’s name, Peter would remain as a trustee but be unable to meet the obligations of that office due to his incapacity. The trustees could not reach a unanimous decision.

The case highlights the need to consider the basis for removal of an incapacitated trustee or executor as well as the practical considerations as to the vesting of assets held in trust.

Also see Bamford v Ives where the orders sought were made but stayed to allow the respondent’s children time to take steps.  In this case the court due attention to the limited amount of information regarding incapacity and concerns regarding the history of family disagreement regarding trust administration.

Regarding vesting orders, also see Removal of trustees, Can attorneys exercise powers of appointment? and Powers of appointment thwarted.

References:

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