Contents

Chapter 8
Appointment and removal of trustees

Transfer of trust property

RECOMMENDATION

R26 The new Trusts Act should:
(1) Impose a duty on a departing trustee to transfer property to the continuing trustees, including to complete formalities for the transfer of registered property interests.
(2) Provide that a trustee shall be divested of all trust property if validly removed from office (including through death or voluntary discharge), and provide that the trust property shall vest in the continuing trustees, subject to liabilities attaching to the trust property.
(3) Provide, as a default provision, that where a trustee has been removed but has not transferred the trust property to a continuing trustee:
(a) the continuing trustee must give the departing trustee notice that the departing trustee will be divested of the trust property after 20 working days;  
(b) if the departing trustee objects within 20 working days, the continuing trustee must apply to court for a transfer order;  
(c) if the departing trustee does not object within 20 working days, the Public Trust may, upon request of the continuing trustee, issue a statutory certificate of vesting confirming that the deeds which remove the departing trustee and appoint the continuing trustees have been validly executed (a vesting certificate issued by the Public Trust will not be ineffective for failure of the notice provisions);  
(d) the Public Trust may refuse to grant a vesting certificate when it considers that the property arrangement is complex or it is not clear whether the trustee was properly removed or for any other reason, and the continuing trustee must apply to the court for a transfer order;  
(e) the continuing trustee may submit the vesting certificate to registries of property interests, in which case the statutory certificate of vesting shall be sufficient and complete proof of change of ownership of property, and:
(i) must be accepted as complete documentation under section 99A of the Land Transfer Act 1952; and  
(ii) must be accepted as proof of transfer of any other registered interest recorded in a register under New Zealand law;
(f) the departing trustee must be given the documents demonstrating that the property is no longer in the departing trustee’s name once transfer and registration are complete; and  
(g) a registry that transfers property in reliance on a statutory vesting certificate is not liable for any loss caused as a result of the transfer of property.

Transferring trust property when there is a change of trustee

8.49The transfer of property when a trustee is removed is addressed in several sections of the Trustee Act.236 These work well for non-registered property interests, but there are issues in relation to the transfer of registered interests. It is unclear what documentation is required to transfer a registered interest where the departing trustee either cannot or will not be involved. Registries are properly concerned to protect against wrongful transfer. However, different requirements for different registries can cause administrative problems for trusts and difficulties for the registries in question, such as potential liability for a wrongfully executed transfer, in the absence of a clear statutory process on which to rely.

8.50A court order addresses these issues, but has its own problems due to cost, delays, and a perceived inaccessibility for lay trustees. It is also questionable whether it is appropriate to use the court’s time for what is essentially an administrative matter.

8.51In the ordinary course of events, the departing trustee should transfer the property to the continuing trustee. However, there are a variety of reasons why this might not occur, such as incapacity, refusal or omission. If there is delay before the continuing trustees realise that they do not have legal title, the departing trustee may no longer be available.237 A process is required to transfer trust property in these cases, but it is important to protect against wrongful transfer.

8.52We recommend combining a statutory vesting provision with a duty on the departing trustee to transfer property, and a process for the Public Trust to issue a certificate of vesting. It would facilitate the transfer of trust property through providing an alternative to a court process for non-contentious cases. The court’s supervision would be retained for contentious cases. We could not go as far as recommending a stand-alone statutory vesting provision as this would be inconsistent with the land transfer system’s principle that the register can be relied on to accurately reflect ownership.

8.53In most circumstances, the simplest way for trust property to be transferred will be for the departing trustee to transfer the property and register the change of ownership. Making this a statutory duty may assist remaining trustees in dealing with a removed trustee who refuses to transfer ownership. This is not a complete solution, however, as it could not be used when the trustee being removed lacks capacity or where it is discovered after removal that the property was not validly transferred.

8.54We address these difficulties by recommending the Public Trust be authorised to issue a certificate of vesting on application by the continuing trustees. This would not supplant the role of the courts where there is a dispute and would only be available for non-contentious transfers. The Public Trust would check the deeds removing and replacing trustees and seek a statutory declaration from the person with the power to appoint and remove trustees affirming that the former trustee was removed for a valid reason under the legislation. If there are objections from the departing trustee, the property arrangement is complex or it is not clear that the trustee was properly removed, the Public Trust should refuse to grant a certificate and the continuing trustees should apply to court for a transfer order instead. If there are no objections or concerns, the Public Trust can issue the certificate.

8.55The certificate could be lodged with Land Information New Zealand, share registries or a similar entity as evidence of change of ownership and would constitute sufficient proof of change of ownership for their purposes. Because the certificate would require a statutory declaration, there would be personal remedies against continuing trustees who dishonestly used a certificate of vesting to transfer property. The new Act would provide that no registry would be liable for relying on a statutory vesting certificate.

8.56This option is preferred to that of giving the continuing trustees or those with the ability to appoint and remove trustees the power to unilaterally transfer assets. While this latter approach would have the advantage of simplicity, there are risks in foregoing any form of independent supervision. Combined with the power to remove trustees, this could freeze out a dissenting trustee and facilitate breaches of trust.

236Section 47 provides that a deed of appointment or discharge operates to vest trust property. It does not apply to some property, including land, or shares or stocks that are transferable only in books kept by a company or other body. The Act allows the court to make an order vesting land (s 52) and stocks and other intangible property (s 59) in limited circumstances. Under s 57, a vesting order takes effect as if the previous trustee had transferred the property but land interests must still be registered.
237The recent case of Re Wilson [2013] NZHC 1365 illustrates this point. This was a straightforward application for the High Court to vest land currently in the name of the former trustee of a testamentary trust in the new trustees as the former trustee was now 90 years old and no longer had the mental capacity to effect the transfer. The Court was satisfied the order to vest the land should be made and the costs of the application were met by the estate.