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Replacement and removal of trustees of will trusts

Commonly will trusts (testamentary trusts) are administered relatively efficiently in New Zealand.  Increasingly this may come down to the fact that given the large number of trusts in New Zealand, and the tendency for settlors to have a linking will, there will be less estates to administer.

However, there will always be estates where issues arise either as to the suitability of a trustee or when a trustee cannot, or does not, want to do the job.

In some estate situations tension can arise between the trustee’s responsibility as trustee, and the same person’s position as a beneficiary.  Consider the situation where a trustee is a beneficiary and the estate owes a substantial debt.  If the debt is paid, the estate available to the beneficiary is diminished.   Or what if the trustee owes a debt to the deceased, and the estate owes a debt to a third party?  The debt can only be paid if the trustee calls up the debt owed by the trustee?

If the will is still in the “administration” or executorship phase, such that the executors have not yet transitioned to trustees  the Court has the power pursuant to s. 21 of the Administration Act 1969 to remove an executor  where it is “expedient” to do so.  It is noted that “expedient” is a lower threshold than necessity.  Matters that the Court turns its mind to include:

  • whether the executor must be removed to ensure that the estate is properly administered – this includes paying all of the estates debts before making any distributions to beneficiaries if this is required by the deceased’s will
  • the executor must have an “independent and impartial mind”
  • decision making should not be clouded by emotional or personal financial considerations.

See Beazley v Tauriki where the court replaced administrators who had not been appointed in accordance with the order of priority set out in the Administration Act at s 27.35 (3).

Also see Littleton v Kelly where the Court determined that an application to remove a trustee of a will estate pursuant to s 51 of the Trustee Act would more appropriately be made under s 21 of the Administration Act.

Although the differentiation between executorship and trusteeship can be largely academic, the distinction can be important in determining how an executor or trustee can be removed.  This was considered in Harsant v Menzies where the court noted as follows:

“[51] As I have said, the present application was brought under s 21 of the Administration Act 1969 which permits the Court:

(a) to discharge or remove an administrator when it is expedient to do so; and

(b) to appoint any person to be administrator in his place, on such terms and conditions in all respects as it thinks fit.

[52] Mr Malcolm (Sam) Harsant submitted, however, that the executors are no longer holding the Cooks Beach property as administrators of Frederick’s estate, but rather as trustees. I agree. The position is as stated by Cartwright J in Re Eagle (deceased).

It is also important to be aware of the stage of the will as a new administrator cannot be appointed pursuant to s 21 if the will is no longer being administered and the administration of the estate is complete.  See Sillick v Sillick.

 The transition from executor to trustee

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. In Inland Revenue Commissioners v Smith [1930] 1 KB 713, at 736 Lawrence LJ held:

 The property which on the death of the testator vests in the executor does not remain vested in him for ever So soon as he assents to the dispositions of the will becoming operative and to the trusts taking effect, the estate vested in him as executor is divested and vests under the dispositions of the will in the trustees of the will.

Formal assent marking the transition of duties from executor to trustee is not commonly given by executors in New Zealand Assent must therefore be inferred In Sullivan v Brett (supra) there were some assets remaining in the hands of the executor at the date upon which the application for extension of time was made. Somers J said at page 206:

Whether the executor’s functions have been completed so that the actual assets which comprise that residue to which the trusts of the will may attach have been ascertained depends upon the course of administration and is normally only within the executor’s knowledge. To meet the claims of executor and beneficiary the law evolved the concept of assent as the means by which a personal representative might indicate that he does not require particular property of his deceased for the purposes of administration and that it may pass to the beneficiary …

Somers J went on to observe that the effect of the assent is to perfect the beneficiary’s title and at the same time to end the personal representative’s interest in the property. In order to determine whether assent can be inferred, the acts of the executor require examination. If the residue after the claims against the estate for debts, legacies, testamentary and administration expenses has been ascertained then assent can be inferred.

The executors did not instruct solicitors to appear at the hearing before me and Sam Harsant made submissions on their behalf.

[53] In the present case probate was granted 20 years ago. In light of the executors’ stated position there is no need to infer assent. But in any event it is clear that the Cooks Beach property is no longer needed for the purposes of administration and has long since been transferred into the names of the executors/trustees, who continue to hold it on behalf of the beneficiaries.

[54] But whether or not the application is made under s 21 of the Administration Act or under s 51 of the Trustee Act 1956 does not, in my view, matter. Section 51 permits the Court to replace trustees and for all present intents and purposes is materially identical to s 21.”

As noted in Harsant v Menzies, if the will has moved from the administrative phase to the trust phase (that is the executor is now acting as a trustee) the avenue for the removal and replacement of a trustee of a testamentary trust is s 51 of the Trustee Act 1956.  The provisions of the Trustee Act 1956 provide for the retirement and replacement of a trustee who is unwilling or unable to carry out the functions of the office of trustee.  As testamentary trusts are established pursuant to a will, rather than a deed of trust, many of the provisions that might be included in a deed of trust (such as provisions relating to the retirement of a trustee) are not included in a will.  Under s 51 the Court has the power to appoint a new trustee (either in substitution for, or in addition to any existing trustee) when it is expedient to do so, and it is inexpedient, difficult or impracticable, to do so without the assistance of the Court.

Where no statutory provision applies, the court can have recourse to its inherent jurisdiction.  Pursuant to this jurisdiction the court is empowered, amongst other things, to remove an executor under a will (who will not act).  This is to ensure the welfare of the beneficiaries (Gambrill v Wynyard Wood (Whitfield) Trustee Services Limited and Whitfield)

References:

  • BUPA Care Services NZ Ltd v Gillibrand [2013] NZHC 2086
  • Re Eagle (deceased); Barbalich v Kennedy and Martin HC Auckland M721/97 & M 1171/97, 21
  • Crick v McIlraith [2012] NZHC 129
  • Harsant v Menzies [2012] NZHC 3390
  • Morris v Goldstein [2013] NZHC 1939
  • Gambrill v Wynyard Wood (Whitfield) Trustee Services Limited and Whitfield [2013] NZHC 885
  • Teariki & Ors v O’Reilly & Ors Wellington CP 1002/91, 16 March 1992; Kain v Hutton [2002] NZCA 180
  • Inland Revenue Commissioners v Smith [1930] 1 KB 713, at 736
  • Beazley v Tauriki [2015] NZHC 116
  • Administration Act 1969
  • Littleton v Kelly [2016] NZHC 1107
  • Sillick v Sillick [2016] NZHC 2880

Discussion

2 thoughts on “Replacement and removal of trustees of will trusts

  1. Is it necessary to apply to the Court to retire a testamentary trustee? Or can some sort of deed or agreement be signed by the parties if all agree to the retirement?

    Posted by Emma Michaels | March 22, 2017, 9:43 am

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