Chapter 8
Appointment and removal of trustees

Who may be a trustee?


R19 The new Trusts Act should provide that any natural person or body corporate may be appointed as trustee of a trust, except:
(a) a natural person under 18 years of age;  
(b) an undischarged bankrupt (an undischarged bankrupt may be appointed with the consent of the court);  
(c) a person who is subject to a property order made under section 31 of the Protection of Personal and Property Rights Act 1988 or a person for whom a trustee corporation is acting as manager under sections 32 or 33 of that Act; and  
(d) a corporation that is in receivership, liquidation or voluntary administration (or any similar status).

Restricting who may be a trustee based on capacity

8.8Currently under case law any person with legal capacity to hold property, including a settlor and any of the beneficiaries, may be appointed as a trustee.220 We have considered whether there should be any restrictions on who may be a trustee, and if so, the content of these restrictions. In particular we drew a distinction between restrictions based on capacity and restrictions based on suitability. Some persons have limited capacity to deal with property or enter into contracts, for example persons under the age of 18 years, undischarged bankrupts (as their existing and acquired property rights vest in the Official Assignee),221 companies which are in liquidation, and persons subject to a property order under the Protection of Personal and Property Rights Act 1988. Irrespective of their suitability for office, such persons are not able to function effectively as trustees because of their limited capacity to deal with property. In contrast, other factors, such as a history of dishonesty offences, do not affect a person’s capacity to deal with property, but may raise doubts about the person’s suitability.

8.9We recommend imposing restrictions based on capacity but not suitability. Persons who lack full capacity should not be able to be appointed as trustee. Any purported appointment should be invalid. While settlor autonomy is an important principle, it should not extend to empowering those who lack legal capacity to act as trustee.

8.10Although the argument can be made that the office of trustee requires good judgement and honesty, and that those who lack these characteristics should be restricted from appointment, it is difficult to draw principled grounds for excluding someone from acting as a trustee based on past behaviour. For example, a category such as “dishonesty offences” includes even relatively minor instances of theft, which a settlor may not consider to be sufficiently serious to preclude appointing a person as trustee. A person who is “mentally disordered” under the Mental Health (Compulsory Assessment and Treatment) Act 1992 might include persons who are entirely capable of managing trust property, depending on the nature of mental disorder.222 A mandatory prohibition would also preclude such people from acting as trustees of trusts they settle for the benefit of their own families. There is an element of subjectivity in judgements about suitability. We consider that these are best left to the settlor rather than imposed through legislation.

8.11 We have accepted submitter suggestions to extend the restrictions on corporate trustees to those in voluntary administration because they also lack sufficient capacity to carry out the role of trustee. We are recommending a continuation of the current general position that any corporation may be trustees at present. However, further restrictions on corporate trustees, such as a company that is under statutory management, has entered into a compromise with creditors or does not satisfy the solvency test, along with other issues relating to the appropriateness of corporate trustees, may be considered further in the corporate trustee review. There is a risk that these companies will be unable to meet financial liabilities to beneficiaries and creditors.

220The only restriction is that there will not be a valid trust if the sole trustee is also the sole beneficiary, because legal and beneficial ownership will exist in the same person. Re Heberley (deceased) [1971] NZLR 325 (CA) at 333 and 346; Re Cook, Beck v Grant [1948] 1 All ER 231 (Ch) at 215.
221Insolvency Act 2006, ss 7 and 102.
222The inclusion of this category in the Eden Park Trusts Amendment Bill 2009 was subject to a report by the Attorney-General under s 7 of the Bill of Rights Act 1990, which held that this constituted unjustifiable discrimination on the basis of disability and was not rationally linked to capacity to be a trustee.