Step one – check the deed of trust
Not all trust deeds allow a trustee to retire at the trustee’s discretion. Where the deed provides for this it is important to actually follow the terms of the deed.
Where the deed of trust does not expressly permit retirement the Trustee Act 1956 should be referred to. Where that is the case a deed of retirement of trustee will need to be prepared and signed by the retiring, continuting and new trustees as relevant. Care is required to ensure compliance with the Trustee Act and that there is a sufficient number of trustees.
If a new trustee is not being appointed in place of the retiring trustee (and retirement is in accordance with the Trustee Act), the continuing trustee(s) and the person with the power to appoint and remove trustees must agree to the retirement of the trustee. Even with consent, unless only one trustee was originally appointed, a trustee cannot retire unless there will be at least two continuing trustees or a company is appointed as trustee.
See below regarding retirement and appointment of the trustee of a testamentary trust (advanced trustee retirement).
Step two – any objections to the trustee’s retirement?
As the retirement of a trustee can be expensive (especially where the trust has significant property investments, all of which will have to be transferred from the retiring trustee to the remaining or new trustees) the other trustee(s) may not be agreeable to the retirement. There might also be opposition to retirement where the trustees have liability concerns.
Where retirement cannot be achieved by agreement, a trustee who wishes to retire can give notice of the intention to retire to any co-trustees and any person with the power of appointment and removal of trustees and pass the trust’s accounts to the Registrar of the High Court or can ask the High Court to appoint a new trustee. This may seem an extreme response. However, given that a trustee remains personally liable until the trustee has retired this course or action may be preferable than to remaining liable both jointly with the other trustees and personally.
Step 3 – sign once, sign right
Where the retirement is by agreement, arrange for a deed of retirement (or whatever documentation is required by the deed of trust) to be prepared, and for all trustees to sign.
If the retirement is by deed, the trustees’ signatures must be witnessed.
Step 4 – attend to the administration promptly!
Once the trustee has retired, the trust’s property must be legally transferred to the continuing and / or new trustees. All the trustees must sign the transfer documents for land and shares and any other property owned by the trustees.
Check that the Companies Office records have been updated to show transfers of shares and ask to see a copy of the certificate of title for any land to show that the trustee is no longer listed as a registered proprietor.
Any signing authorities with banks or other institution need to be updated.
The retiring trustee must ensure that the IRD is advised that the trustee has retired.
If the trust is GST-registered, the retiring trustee must also give written notice of the retirement to the Commissioner of Inland Revenue. A trustee will remain liable for GST until the IRD has been notified in writing that the person is no longer a trustee. Retirement will not avoid any liability incurred before the trustee’s retirement.
The retiring trustee should also advise the trust’s beneficiaries, investment adviser, accountant, lawyer and any other party the trust has had dealings with that the trustee has retired.
Advanced trustee retirement
If the trustee in question is the trustee of a testamentary (will) trust the procedure will depend in part on how far advanced the administration of the will is. That is whether the trustees (executors) are still longer holding the trust property as administrators of the estate, or as trustees. In the former the application for retirment / appointment is made under s 21 of the Adminstation Act and otherwise under s 51 of the Trustee Act.
Although a determination either way is not fatal, it is necessary to form a view so that the correct application can be made.
Cartwright J provides a useful statement of the position in Re Eagle (deceased):
“Although it is common for one person to discharge both functions, nonetheless the roles of executor and trustee are quite distinct The executor’s duties include proving the will, burying the deceased, getting in the assets and paying the debts, funeral and testamentary expenses and death duties The residue is then transferred to the beneficiaries or the executor assents to the vesting of that property in him or herself as trustee. At that point there is a transition to the office of trustee, who holds the property upon any specific trusts in the will If there are none, then the estate is held on trust for the beneficiaries according to their rights and interests under the will until a specified event occurs.”
Whether the executor’s functions have been completed so that the assets that comprise the residual will trust have been ascertained depends upon the course of administration and is normally only within the executor’s knowledge. To address this the law has evolved the concept of assent as the means by which an administrator might indicate that the administrator does not require particular property of the deceased for the purposes of administration and that it may pass to the beneficiary.
However, as formal assent marking the transition of duties from executor to trustee is not commonly given by executors assent must therefore be inferred.
Assent is dtermined on a case by case basis and requires consideration of the acts of the executor. If the residue after the claims against the estate for debts, legacies, testamentary and administration expenses have been ascertained then assent can be inferred.
Where assent has not occured, a claim is made under s 21 of the Administration Act; where it has the claim is under s 51 of the Trustee Act 1956. Practically little turns on this as the respecive provisions are in almost identical form. Expedience is the test the Court must apply in each case. Expedience is a lower threshold than necessity and imports considerations of suitability, practicality and efficiency. Misconduct, breach of trust, dishonesty, or unfitness is not required to be established.
Other relevant guiding principles that are evident provide that: