As a nation, our population is aging. Alongside this is an increase in the number of people who can no longer continue to manage their own affairs due to mental incapacity. Where the incapacitated person is the Trustee of a family or discretionary trust that can make the administration of the trust all but impossible.
As most trust deeds require that Trustees act unanimously, if one Trustee is incapacitated, and therefore unable to act or participate in decision making, it will leave the remaining Trustees, and the Trust itself, in limbo until such time as that incapacitated trustee has been removed.
The removal of an incapacitated trustee can be effected by:
1. Using the Trust Deed
Where there is a specific power of appointment held by someone who is alive, and who is not the incapacitated trustee, they can use that power to remove a trustee, whether that trustee is incapacitated or not. This may require having a difficult conversation with an aging trustee but will save all parties anxiety, time and money.
2. Section 43 of the Trustee Act 1956
If the Trust Deed is silent as to who holds the power of appointment, or the incapacitated trustee is the trustee with the power of appointment, s 43 can be used to remove the incapacitated trustee but only where that trustee is being replaced by a new trustee.
3. Section 51 of the Trustee Act
The Court can, under s 51, exercise its power to remove an incapacitated trustee but only when it is “inexpedient, difficult or impractical to do so without the assistance of the Court …”[i] and, as with s 43 above, only where the incapacitated trustee is being replaced.
The Courts also have an inherent jurisdiction to remove an incapacitated trustee if the Court is satisfied that it is in the interests of the beneficiaries and where “… the continuance of the trustee would prevent the trusts being properly executed …”[ii]
Transferring the Trust Property
Once the incapacitated trustee has been removed, any real property owned by the trust will need to be transferred into the names of the new Trustees.
An Enduring Power of Attorney in relation to Property (EPA Property) cannot be used for this purpose, as this document deals with personal property and does not extend to property owned as a trustee.
Land Information New Zealand (LINZ) has confirmed that an Attorney appointed under an EPA Property cannot sign an Authority & Instruction Form for an incapacitated trustee.
That being the case, an application to the High Court will be need to be made for a Vesting Order, under s 52 of the Trustee Act 1956, to vest the trust property in the names of the new Trustees.
As Trustees get older, regular meetings of the Trustees will be critical for the on-going management of the Trust.
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