Contents

Summary of recommendations

Chapter 8 – Appointment and removal of trustees

Acceptance and rejection of trusteeship

R18 The new Trusts Act should provide that:
(1) A person who is appointed as a trustee of an express trust may accept or reject the trusteeship.
(2) Acceptance of a trusteeship must be either express (in writing or oral) or clearly implied through conduct, unless otherwise specified in the terms of the trust.
(3) Rejection of trusteeship need not be in writing (unless the terms of the trust specify otherwise), but must be communicated to the person specified under the terms of the trust (such as the settlor or appointer) in clear and unambiguous terms.
(4) If a trustee does nothing to accept or reject a trusteeship within three months of receiving notice of the appointment, the trustee will be deemed to have rejected the trusteeship.
(5) If a trustee rejects the trusteeship, the property vests in the remaining trustees.

Who may be a trustee?Top

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).

Mandatory and discretionary grounds for removal of a trusteeTop

R20 The new Trusts Act should:
(1) Require the removal of certain trustees by imposing an obligation on persons with the power to appoint and remove trustees under R21(1) to remove a trustee when the following mandatory grounds are met:
(a) the trustee is incapacitated; and  
(b) the trustee is subject to either an enduring power of attorney in relation to property or a property order, or has a trustee corporation appointed to act as a manager under the Protection of Personal and Property Rights Act 1988; and  
(c) the trustee’s powers have not been delegated by a delegation authorised by statute or by the terms of the trust.
(2) Empower (but not require) persons with the power to appoint and remove trustees under R21(1) to remove a trustee and appoint a replacement, if it is desirable for the proper functioning of the trust, when one or more of the following discretionary grounds are met:
(a) the trustee refuses or fails to act as a trustee;  
(b) the trustee, being a corporate trustee, enters into receivership or liquidation, ceases to carry out business, is dissolved, enters into a compromise with creditors or voluntary administration under Parts 14 or 15A of the Companies Act 1993, or does not satisfy the solvency test in section 4 of that Act;  
(c) the trustee is no longer considered suitable to continue to hold office as a trustee because of circumstance or conduct, for instance, this may be the case when:
(i) the whereabouts of the trustee is unknown and the trustee cannot be contacted;  
(ii) the trustee is not capable of fulfilling the role because of sickness or injury;  
(iii) the trustee is adjudged bankrupt;  
(iv) the trustee is convicted of a dishonesty offence;  
(v) the trustee becomes precluded from serving as a director under the Companies Act 1993 because of a breach of that Act or the Securities Act 1978, or is the subject of a current banning order under the Financial Markets Conduct legislation;  
(vi) the court finds the trustee has committed serious misconduct in the administration of the trust; or  
(vii) the trustee, being a lawyer, chartered accountant or financial adviser, is found to have seriously breached the applicable ethical standards of that profession, resulting in the trustee being struck off, losing a license or being disqualified.
(3) Retain the court’s general discretion to remove trustees if expedient, including the discretion to remove a trustee without appointing a replacement in accordance with R25.
(4) Provide that nothing in (1) or (2) is to be read as limiting the grounds on which a person nominated under the terms of the trust with a power to remove and appoint trustees is entitled to exercise that power.

Who may remove a trustee and appoint a replacementTop

R21 The new Trusts Act should provide that:
(1) In absence of any contrary intention in the terms of the trust, the following persons have the power to remove and appoint trustees by deed when the grounds in R20 are met:
(a) the person nominated under the terms of the trust with a power to remove and appoint trustees; or  
(b) if there is no person in (a) or if that person is unavailable or unwilling to make a decision, the remaining trustees; or  
(c) if there is no person in (a) or (b) or if that person is unavailable or unwilling to make a decision, whichever of these representatives of the trustee being removed is relevant:
(i) a property manager appointed over the trustee under the Protection of Personal and Property Rights Act 1988;
(ii) the holder of an enduring power of attorney over property of an incapacitated trustee; or
(iii) the liquidator of a corporate trustee that enters into liquidation.
(2) Where a representative of the trustee listed in (1)(c) acts to remove and replace, the following process applies:
(a) the representative should provide notification of the intended discharge of the trustee and of the person selected as replacement, and a statement of the trust accounts to all competent adult beneficiaries, or where it is unreasonable or impractical to do so, to a reasonably representative sample of beneficiaries;
(b) the beneficiaries should be given 20 working days from the date that notification is received to object to the intended replacement trustee or to anything in the statement of trust accounts;  
(c) at the end of the notice period, if no one has objected the representative should apply to the Public Trust to confirm the discharge and replacement of the trustee;  
(d) the Public Trust, if it is satisfied that due notice and information was given to the beneficiaries and that no objections have been made, may confirm the discharge and replacement of the trustee by deed;  
(e) if a beneficiary objects, an application will need to be made to the court for the trustee to be removed and replaced;  
(f) if the Public Trust:
(i) is not satisfied regarding the notice and information given to the beneficiaries; or  
(ii) has concerns because of issues raised by the beneficiaries, disagreement between the parties, or any other reason,
it may decline to confirm the discharge and replacement of the trustee. An application will need to be made to court for the discharge and replacement of the trustee and the court will be able to make any other necessary directions about the management of the trust.

Appointment of replacement when trustee dies while in officeTop

R22 The new Trusts Act should provide that, in absence of any contrary intention in the terms of the trust:
(a) if a trustee dies while in office and it is necessary, either because the trustee was a sole trustee or because the terms of the trust require it, or desirable for the trustee to be replaced, the replacement may be appointed by deed by:
(i) the person nominated under the terms of the trust with a power to remove and appoint trustees; or  
(ii) if there is no person in (i) or if that person is unavailable or unwilling to make a decision, the remaining trustees; or  
(iii) if there is no person in (i) or (ii) or if that person is unavailable or unwilling to make a decision, the executor or administrator of the trustee; and
(b) if the deed of replacement is to be made by the executor or administrator, the process of notification of beneficiaries and confirmation by the Public Trust in R21(2) should apply.

Retirement and replacement of trusteeTop

R23 The new Trusts Act should provide that, in absence of any contrary intention in the terms of the trust:
(a) if a trustee wishes to retire, the trustee may be discharged by deed by:
(i) the person nominated under the terms of the trust with a power to remove and appoint trustees; or  
(ii) if there is no person in (i) or if that person is unavailable or unwilling to make a decision, the remaining trustees; or  
(iii) if there is no person in (i) or (ii) or if that person is unavailable or unwilling to make a decision, the retiring trustee and a replacement trustee, selected by the retiring trustee, together; and
(b) if (a)(iii) applies, which will be the case if the retiring trustee is a sole trustee or if the persons in (a)(i) and (ii) are unavailable or unwilling, the process of notification of beneficiaries and confirmation by the Public Trust in R21(2) applies (with necessary amendments).

Exercise of power to remove and appoint trusteesTop

R24 The new Trusts Act should provide that:
(1) Those who exercise a power to discharge and/or appoint trustees under the new Act (under R20, R22 and R23) rather than because they are appointed by the terms of the trust are subject to a mandatory duty to exercise the power in good faith, honestly and for a proper purpose (R2).
(2) The court may remove and replace someone with the power to discharge and appoint trustees under the terms of the trust if that person has exercised the power unlawfully, or if that person has been removed as a trustee, or if otherwise expedient.
(3) A person with the power to appoint trustees would be entitled to apply to the court for directions in the exercise of that power.

Numbers of trusteesTop

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.  

Transfer of trust propertyTop

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.