November 07 2012
Trustees sometimes need to sign documents in a hurry. An example is bank mortgage documents which may need to be signed so that the trust can borrow to cover expenditure. If one of the trustees is away or cannot sign documents for some other reason, the obvious solution would be for someone else to be authorised to sign on behalf of the trustee.
This simple solution, unfortunately, comes up against an important principle of trustee law. Trustees are appointed because the settlor – or whoever has power to appoint new trustees – trusted them to make good decisions. So it is the trustees who should make decisions. They should not hand that duty on to somebody else.
There is an important difference here between:
- Trustees appointing an agent to carry out decisions they have already reached, and
- Delegation, ie: handing over your role as trustee to somebody else.
Appointing an agent
Most trust deeds include a clause allowing the trustees to appoint an agent. This might be to collect rent, manage a property or negotiate a sale. If you expect an organisation such as a bank to accept a document that has been signed by an agent, then it needs to be clear that there is power under the trust deed for this to happen and that the agent is in fact carrying out decisions reached by the trustees. So the bank may want to see a resolution signed by each trustee.
If a trustee needs to delegate, ie: hand over authority as trustee for a time, then a deed of delegation is usually signed. The law only allows a delegation if the trustee is actually outside New Zealand or is temporarily physically incapacitated. The deed can be signed in anticipation of absence from the country or physical incapacity but the delegation is only effective while the trustee is overseas or incapacitated.¹
It’s quite common for trustees to be advised to sign a deed of delegation like this. The person appointed, however, needs to understand that the delegation of the trustee’s powers only takes effect while that trustee is overseas or physically incapacitated. Banks and other organisations need to know whether the delegation is effective if they are to rely on documents signed under delegation in this way. For example, the bank is unlikely to pay out money under a mortgage unless it knows the mortgage has been properly signed and is binding on the trustees.
If you expect that you are likely to be unable to sign trust documents in the near future, it’s important to plan ahead.
Resolutions and other documents should be signed in advance where possible. Deeds of delegation can be used to cover temporary physical incapacity or travel overseas, but they cannot be relied on if the trustee simply has difficulty getting into the office to sign documents. Trustees who are mentally incapacitated should normally be removed and replaced. Delegation is not appropriate in that situation.
¹ s31 Trustee Act 1956