Appointment and

Removal of Trustees in Practice

Appointment and Retirement of

Trustees

Context Some Trustees need to be removed due to incapacity or incompetence. Some trustees wish to retire, but can face opposition to their retirement. Management of the retirement and appointment of trustees is an important facet of trust management. It is very important to recognise who holds powers of appointment and removal and whether these are fiduciary powers. Can an attorney under and enduring power of attorney exercise trustee powers? The appointment and removal of trustees can require the assistance of the High Court pursuant to legislated powers or its inherent jurisdiction.

Appointment and Retirement of

Trustees

How to appoint / remove Most modern deeds of trust include a power to appoint trustees. This can be held by an appointor, protector or the trustees. Some deeds include a power to appoint but not a power to remove.

Some deeds provide for a trustee to retire. If the deed does not provide for retirement then the Trustee Act applies. Trust deeds may also provide for a minimum number of trustees or require independence.

When appointing a trustee, removing a trustee or a trustee retires pursuant to a power in the trust deed, it is very important to comply with the terms of the deed. See Cadman v Visini and CIR v Robertson

Appointment and Retirement of

Trustees

Trust deed considerations Trust deeds can, but do not always provide for retirement of trustees. Trust deeds commonly, but do not always, provide for the appointment of trustees. The power of appointment in the Trust Deed might sit with appointors, settlors or the trustees. Can a power of attorney in a Trust Deed be used for transferring trust property? Careful review on a case by case basis is essential.

Appointment and Retirement of

Trustees

Fiduciary power “The power to appoint new trustees is generally acknowledged to be a fiduciary power even though it may not have been conferred on trustees or the holder of any other office. Equally, a power to remove a trustee and replace him with a new trustee is almost always considered to be a fiduciary power to be exercised in the best interests of the beneficiaries. This is because the subject matter of the power is the office of the trustee which lies at the core of the trust and carries fundamental and onerous obligations to act in the best interests of the beneficiaries as a whole.”

Carmine v Ritchie at [60]. Also, see McLaren v McLaren

Appointment and Retirement of

Trustees

Fiduciary power “In summary, we conclude that the father [who had the power of appointment] failed to take into account material matters, namely the expertise, experience, financial standing etc. of the proposed trustee of two substantial trusts, took irrelevant matters into account (namely New Zealand’s position vis à vis Italy) and in the circumstances reached a decision which no reasonable appointor could have arrived at. We therefore declare the appointment of Kairos to be invalid in relation to both Trusts.”

Representation of Jasmine Trustees Ltd

In the Matter of the Piedmont Trust and the Riviera Trust

Appointment and Retirement of

Trustees

Fiduciary power [14] For this reason and the reasons discussed in Godfrey v McCormick, the PPPR Act must be read as not extending to an attorney the power to act for a person in relation to their power of appointment of new trustees under a trust deed. This power cannot be considered as a personal property right of the person who has granted the EPA because associated with the power are the fiduciary duties owed to the beneficiaries.”

Re Marshall Family Trust

Appointment and Retirement of

Trustees

Deed of retirement / removal When using precedent deeds it is important to ensure that the deed correctly reflects the situation. Matters to take into consideration include:

• Review the trust deed • Is capacity an issue? Green v Green • Will recourse to the Trustee Act 1956 be required? • Is a valid discharge an issue? Jasmine Trustees v Wells • Practical steps including notifying Inland Revenue. See Selkirk v

McIntyre • What assets are to be transferred • Who can sign transfer authorities? Godfrey v McCormick • Indemnity considerations

Appointment and Retirement of

Trustees

How to appoint / remove Methods for appointment and removal of trustees outside the terms of the trust: • Administration Act, s 21 • Trustee Act, s 43, 45, 46, 51 • High Court’s Inherent Jurisdiction

Appointment and Retirement of

Trustees

Administration Act, s 21 If the Court’s assistance is required regarding the appointment or removal of the trustee of a testamentary trust, the correct means as to the retirement or appointment of a trustee will depend in part on how far advanced the administration of the will is. The question is whether the trustees (executors) are still holding the trust property as administrators of the estate, or as trustees?

In the administration phase the application for retirement / appointment is made under s 21 of the Administration Act and otherwise under the Trustee Act.

Re Eagle (deceased)

Appointment and Retirement of

Trustees

Administration Act, s 21 The differentiation between executorship and trusteeship can be largely academic. However, the distinction can be important in determining how an executor or trustee can be removed. See Harsant v Menzies at [51] and [52]: “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.

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.”

Appointment and Retirement of

Trustees

Trustee Act, s 43 Section 43 provides a ranked process to determine who has the power to appoint trustees in a range of circumstances.

Where the deed of trust is not able to assist, s 43 is the next place to go to establish who has the power to appoint trustees and to determine how many trustees must be appointed.

If there is no appointor the trustees have the power to appoint trustees.

Appointment and Retirement of

Trustees

Trustee Act, s 45 Section 45 provides that so long as there will still be a trustee corporation or at least two individual trustees left, a trustee can retire by deed if the trustee’s co-trustees and the appointor (if there is one) consent. A single individual trustee can act as the sole trustee pursuant to s 45 of the Trustee Act if there was a single individual trustee appointed in the deed. See Jasmine v Wells It is very important to ensure that any retirement is procedurally correct and is properly documented. For example, if a deed is required the retirement is not effective unless recorded in a deed. Also consider who needs to be notified such as the bank, beneficiaries, Inland revenue etc.

Appointment and Retirement of

Trustees

Trustee Act, s 46 A trustee cannot be compelled to remain a trustee. Where a trustee wishes to retire, but cannot do so without assistance (for example there is no right of retirement provided for in the trust deed and s 45 of the Trustee Act does not apply) , s 46 of the Trustee Act can assist.

Section 46 allows a trustee who wishes to retire, but cannot otherwise do so to, can retire by passing the trust accounts to the Registrar, and giving notice of the retirement to any co-trustees and the appointor. If necessary the court can also assist.

Appointment and Retirement of

Trustees

Trustee Act, s 46 In SWL Trustee Company Limited v Marshall & Anor SWL Trustee Company Limited (SWL) acted together with two other trustees as trustees of a family trust. SWL was unable to get instructions from its co-trustees and gave the notice required by the deed of trust. However, SWL’s co-trustees would not respond. Legal title to the trust properties could not conveyed from SWL to a replacement trustee and the continuing trustees.

As a new trustee was not being appointed s 51 was not the appropriate course of action. Instead an application needed to be made for removal under s 46 of the Trustee Act as well as an application for a vesting order transferring the property to the continuing trustees. Costs were also awarded to SWL.

Appointment and Retirement of

Trustees

Trustee Act, s 51 Section 51 of the Trustee Act confers power on the Court to remove a trustee if the Court is appointing a new trustee. Section 51 cannot be used only to remove a trustee: Thurston v Thurston.

When the Court is exercising its power to appoint new trustees, matters to take into consideration include the settlor’s intentions, neutrality between beneficiaries and promotion of the purposes of the trust. The High Court will not make an order removing a trustee lightly. Courts are reluctant to remove trustees if other avenues can be found to remedy the perceived risk. Expedience is generally the main criteria.

Appointment and Retirement of

Trustees

Trustee Act, s 51 While the grounds set out in s 51 include misconduct, a trustee does not need to have committed a breach of trust in order to be removed. As was stated in Attorney-General v Ngati Karewa and Ngati Tahinga Trust:

“[66] As our Court of Appeal pointed out in Hunter v Hunter (1938) NZLR 520, 529, the primary question is not whether the impugned trustees have committed breaches of trust. The jurisdiction to remove trustees is merely ancillary to the principal duty of the Court to see that the trusts are properly executed: principal duty of the Court to see that the trusts are properly executed: Letterstedt v Broers….”

Appointment and Retirement of

Trustees

Resisting removal Trustees removed against their wishes need to carefully consider defending removal. A better course of action can be to seek directions before defending removal proceedings. Where a court is considering the removal of a trustee relevant considerations include:

• expedience, which imports considerations of suitability, practicality and efficiency

• a trustee should not be removed lightly: the motivating reason for trustees’ removal must be some “detriment to the administration of the trusts.” See Guest v Warner, Green v Green

Fiduciary considerations regarding the exercise of powers of removal are also relevant. See Kea v Pugachev

Appointment and Retirement of

Trustees

Trustee Act, s 51 Guidance on when it is it is expedient that a new trustee is appointed by the Court or inexpedient, difficult, or impracticable to appoint a new trustee without the assistance of the Court in the context of a licenced securities trustee, is provided in Perpetual Trust Limited v Lombard Finance & Investments Limited where the trustee’s licence to act as a corporate trustee was due to expire. It was “inexpedient, difficult and impracticable” to appoint a new trustee without the assistance of the Courts because the investors had to agree to the appointment of a new trustee by way of an extraordinary resolution and there were geographically diverse groups of investors ranging from 230 to 13,000

Appointment and Retirement of

Trustees

Trustee Deadlock

Where trustees are deadlocked, whether because of a relationship breakdown or some other tension, trusts cannot function. In Little v Little Mrs Little applied for Mr Little to be removed as a trustee following their relationship break down on grounds that included his failure to account for trust funds and that he had acted unilaterally, contrary to the terms of the deed of trust. The Court was “satisfied that Mr Little has no grasp of the duties owed by a trustee and that he cannot be relied upon to fulfil his obligations as such. In particular, Mr Little has failed to separate his duties as a trustee from the pursuit of his personal interests.” Mr Little’s unilateral actions were in breach of Trust.

Appointment and Retirement of

Trustees

Incapacity The decision in Godfrey v McCormick provides an excellent consideration of the relationship between powers of attorney and trustee powers and the process required when a trustee has lost mental capacity and the trust owns real property.

See para [12] where Nation J notes that “LINZ … 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….”

Also see Re Marshall Family Trust regarding the removal of trustees pursuant to an enduring power of attorney

Appointment and Retirement of

Trustees

Incapacity When a trustee can no longer act as a trustee due to the effects of dementia or other incapacity the trustee must be removed. If there is no suitable power in the trust deed that can be used, or the trust owns property, an application can be made to the High Court the removal of the trustee, the appointment of a replacement trustee if necessary, and any vesting orders required.

It is important to consider any competing interests. In Neverman v Hudson the Court raised the question as to whether (when all of the discretionary beneficiaries had consented to the application) the consent of “any issue of any final beneficiary” should also be required.

Appointment and Retirement of

Trustees

Inherent Jurisdiction Where no suitable statutory provision applies, the Court can have recourse to its inherent jurisdiction to remove a trustee (or make other related orders) where this is necessary for the welfare and benefit of the beneficiaries and the trust property. The Court’s inherent supervisory function is derived from the Court’s equitable powers to supervise trusts for the benefit of the beneficiaries.

Miller v Cameron

Appointment and Retirement of

Trustees

Inherent Jurisdiction “… in cases of positive misconduct, Courts of Equity have no difficulty in interposing to remove trustees who have abused their trust; it is not indeed every mistake or neglect of duty, or inaccuracy of conduct of trustees, which will induce [the Court] to adopt such a course. But the acts or omissions must be such as to endanger the trust property or to shew a want of honesty, or a want of proper capacity to execute the duties, or a want of reasonable fidelity.”

Letterstedt v Broers

Appointment and Retirement of

Trustees

Inherent Jurisdiction The Court has a discretion whether to exercise its inherent jurisdiction. See Wallace v Naknok where the Court declined to do so. In that case Mr Wallace sought the removal of Ms Naknok as his co-trustee following the end of their relationship. Although Mr Wallace was the sole beneficiary of the trust, the Court found that as Mr Wallace had chosen to form a trust, the law of trusts applied with respect to the legal relationships that arose as a result of the trust. While the Court must have regard to the welfare of the beneficiaries, this does not mean that the Court must accede to the wishes of a beneficiary as to who the trustees should be.

Appointment and Retirement of

Trustees

Absence A trustee who is absent (either overseas or “missing in action”) cannot acquit the trustee’s responsibilities and so may need to be removed.

See Wright v Wright where the plaintiff trustees could not continue to administer the trust as one trustee would not attend trustee meetings to discuss trust business, but also refused to sign a Deed of Retirement. On application to the Court the trustee was removed and a new trustee appointed pursuant to s 51 of the Trustee Act. The Court was satisfied that “the defendant has not been discharging her duties as trustee and is willing to resign but has not done so.”

Appointment and Retirement of

Trustees

Contact details

Vicki Ammundsen Vicki Ammundsen Trust Law Limited Level 7, 38 Wyndham Street, Auckland Ph. 09 222 2650 E-mail: vicki@vatl.nz Blog: mattersoftrust.co.nz