What is the process for removing or replacing a trustee?
Removal of Trustees
It is usual for trust deeds to provide details of the manner and the occasions for the removal of trustees, and the formalities required. Express powers contained in the trust instrument take precedence over the statutory powers contained in the Trustee Act 1956. In the first instance, the trust deeds should be checked carefully.
If necessary, it is possible to file Court proceedings to remove a trustee. The Court has both statutory and inherent powers to appoint and remove trustees. The primary consideration, when considering the removal of a trustee, is the welfare of the beneficiaries. Courts are often reluctant to remove trustees if other avenues can be found to remedy the perceived risk.
There are situations where the Court is likely to remove trustees. These include where a trust has not been operated in a satisfactory manner for a number of years; where there is dishonesty or a lack of fidelity; where trustees cannot agree on decisions; and where there is a conflict of interest.
Replacement of Trustees
Again, it is common for trust deeds to provide for the manner and the occasions for the appointment of new trustees, and the formalities required. Express powers contained in the trust instrument take precedence over the statutory powers contained in the Trustee Act 1956 so it is always important to review and understand the wording of the trust documentation. Beneficiaries cannot control the exercise of any power appointing new trustees.
The person nominated by the trust instrument to appoint new trustees (or if there is no person nominated or that person cannot or will not act, then the surviving or continuing trustees, or the personal representatives of the last surviving or continuing trustee) may appoint a person or persons (whether or not exercising the power) by deed to be a trustee or trustees in the place of an existing trustee. This is where that trustee:
- is dead; or
- remains out of New Zealand 12 months and has not delegated any trusts, powers, or discretions vested in him or her as trustee; or
- desires to be discharged from all or any of the trusts or powers reposed in or conferred on him; or
- refuses to act; or
- is unfit to act; or
- is incapable of acting; or
- is a corporation, has ceased to carry on business, is in liquidation, or is dissolved.
In addition, the Court has a discretion (under s 51 of the Trustee Act) to make an order appointing a new trustee in substitution for a trustee who:
- has been held by the Court to have misconducted himself or herself in the administration of the trust; or
- is convicted, whether summarily or on indictment, of a crime involving dishonesty; or
- is a mentally disordered person, or whose estate or any part thereof is subject to a property order made under the Protection of Personal and
Property Rights Act 1988; or
- is a bankrupt; or
- is a corporation which has ceased to carry on business, or is in liquidation, or has been dissolved.
Decisions as to whether to remove and/or replace existing trustees can involve several difficult legal and practical issues. Any formality requirements must be strictly complied with. Adina Thorn Lawyers can advise on rights and defences as well as facilitate resolution. It is therefore important to seek legal advice at all stages.