Contents

Chapter 8
Appointment and removal of trustees

Numbers of trustees

RECOMMENDATION

R25 The new Trusts Act should provide, in absence of any contrary intention in the terms of the trust, that:
(a) trustees can be removed without being replaced, provided that this will not result in there being fewer trustees than the minimum number prescribed in the terms of the trust; and  
(b) if a sole trustee is removed or dies in office, the trustee may be replaced with more than one replacement trustee, unless the terms of the trust provide otherwise.  

Altering the number of trustees

8.44The Trustee Act does not impose a minimum number of trustees. This is left to the trust deed. However, a trustee must not be removed without being replaced under the statutory power of removal unless two trustees or a statutory trustee corporation remains in office. A retiring trustee will not be discharged from duties unless two trustees or a trustee corporation remains in office.235 In effect this means that there is a default minimum requirement of two trustees on an on-going basis unless the initial appointment was a single trustee, or unless one of the statutory trustee corporations is appointed.

8.45The minimum number rules are not explicit and the provisions are not well understood. There is a widespread misconception that the trustee corporation exception in section 43(2)(c) applies to any corporate trustee as opposed to a statutory trustee corporation.

8.46Our recommendation would enable the replacement of trustees where necessary but will not require a removed trustee to be replaced in every instance. This decision would be subject to the overall duty of good faith and honesty where the appointer is subject to such a duty, and, where it is a trustee exercising the power to remove and appoint another trustee, the trustee is subject to the mandatory duties of trustees and any other duties that apply under the particular trust. This is simplified from what we had proposed in the Preferred Approach Paper as a result of submitters’ comments that the considerations we had previously proposed to guide how the decision is to be exercised made the provision overly complex.

8.47The recommended provision could be overridden by a contrary intention expressed in the trust deed. New legislation should not contain a statutory default minimum number of trustees for the initial appointment or subsequent appointments. A statutory minimum number of trustees is unnecessary and would complicate existing arrangements that have only one trustee. It should continue to be possible for a settlor to appoint a sole trustee. If a sole trustee is removed it should be possible to appoint more than one trustee in replacement.

8.48We have not pursued that part of the original proposal that attempted to clarify that if a settlor provided in the trust deed that there must always be two or more trustees, this would be interpreted as requiring two persons who are able to exercise independent judgement. We accepted submitter feedback that this is not necessary if the statutory default position is that there can be a sole trustee. Where the trust deed prescribes its own rules for the number of trustees it is not helpful for legislation to provide an interpretation that goes beyond what the legislation permits when the trust deed is silent.

235Trustee Act 1956, s 43(2)(c).