Family Trusts – Removing a Trustee
A trustee of a discretionary family trust cannot just be removed at the wave of a hand. In fact, settlors (those that establish the trust originally) must be careful that they don’t appear to just be getting rid of those trustees that stick their heads above the parapet, such as when perhaps trying to stop the settlor from advancing their own financial gains above the interest of the beneficiaries.
So how can trustees legitimately be removed?
Other than the mechanisms for removal of trustee in the trust deed itself, the Trustee Act contains the legitimate reasons for a trustee’s removal.
Under section 43, in addition to the powers contained in the trust deed itself, the person nominated by the trust deed to appoint new trustees may appoint a replacement trustee where an existing trustee:
- has died;
- is out of the country for more than 12 months and they have not used their powers as trustee;
- wants to be discharged;
- refuses to act as trustee;
- is deemed unfit or unable to act as a trustee;
- is a corporation that has gone into liquidation, has ceased to carry on business, or is dissolved.
Under section 51, the Court may replace a trustee where the trustee:
- has committed misconduct in the administration of the Trust;
- has been convicted of a crime involving dishonesty;
- is mentally disordered or whose estate is subject to a property order;
- is bankrupt;
- is a corporation that has gone into liquidation, has ceased to carry on business or, is dissolved.
Therefore, a trustee who is merely trying to act in the trust’s best interests but perhaps in opposition to a dictator settlor cannot just be given the bump.
The Court also has a general discretion to remove and appoint trustees where to do so is in the best interests of the trust (for instance where there are irreconcilable disputes among trustees or a conflict of interest between trustees and beneficiaries). However, if an application has to be made to the Court to resolve a dispute, this is expensive, time consuming and the Court may order an outcome that was not intended by those bringing the application. Thus it is best to avoid this if possible.
A trustee may also retire by way of Deed of Retirement with the consent of co-trustees and those with the power of appointment and removal. However, those involved must also remember that simply entering a Deed to remove a trustee is not enough to remove that trustee from the trust completely. Trustees hold property in their names – not in the trust’s name; therefore, the appropriate processes and documentation must be entered in order to have the retiring trustee’s name removed from such things as the Certificate of Title to the property, insurance certificates, and any guarantees and lending. Any new trustee must also have their name added to such documents.
We recommend that if you are dealing with trustee issues or want your Trust Deed reviewed to ensure it provides appropriate mechanisms for the removal and appointment of trustees, you get in touch with your Saunders & Co legal advisor.