Do you really want to be a trustee for life?

October 19 2017

Do you really want to be a trustee for life?

All trustees have tasks and duties that have to be performed on a regular basis, even in small family trusts. It’s a burden of responsibility nobody can reasonably be expected to bear for life. This raises questions. When is the right time to walk away? What happens if an ageing trustee is no longer mentally competent? Here are the answers.

There are many institutions around the world that limit the time in which people can serve in a particular role. In many cases, this is because it is seen to be unhealthy and an excessive burden for one person to bear for an extended period. It’s also done to ensure ongoing competent governance of an organisation by bringing new people with fresh enthusiasm into the role.

The role of a trustee is similar, even though trustees aren’t bound by specific ‘terms in office.’ And no one could be reasonably expected to want to serve as a trustee for life. You also have to consider the unexpected.

Develop a succession plan for trustees

Thinking about a succession plan doesn’t need to be a complex task. Simply consider which trustees are likely to want to retire and who would make suitable replacements. You might consider inviting potential future trustees to a trust meeting to see if there’s a good fit, and so they can see how your trust runs.

Family trusts commonly meet the challenging problem of what to do with elderly trustees who aren’t mentally competent or reliable when it comes to managing their duties. As outlined in our article about the changes to the Trusts Bill, trustees are required to complete and are accountable for certain duties. If the job is too much, these trustees should be encouraged to retire.

Why old trustees can’t be ignored

Again, being a trustee comes with a burden of responsibility. It’s dangerous to assume that you can simply leave a trustee out of the decision-making process if they’re no longer competent for any reason.  Nor can you ignore them. Trustees must participate in all decisions, even when the trust deed allows for majority decision-making. Legally, any trustee remains a trustee until they retire, or are replaced or removed. Most trust deeds have clauses to allow this. 

The competency of ageing trustees has been causing problems. In many cases, the other trustees have applied to the High Court to remove the problem trustee. If trustees are thinking about selling property, and one trustee is unwilling or unable to sign to complete the sale, they’d have to make an urgent application to the High Court to get the incapacitated trustee’s name removed from a land title. Even if the trust has an appointer or protector, it may still be necessary to apply to the High Court to remove a problem trustee.

There are situations where it isn’t simple to remove an incapacitated trustee. A good example is where there are two trustees and the law requires there to be at least two people acting as trustees. If you’re in this position, speak to our trust lawyers for advice about removing or replacing a trustee.

The good news is the Trusts Bill may solve such problems, as it contains some processes geared around simplifying the replacement of trustees and the correction of land titles. As no one knows how long it will take to bring the Bill into law, speak to our trust lawyers if you have any immediate concerns.

Key points

  • If a person isn’t mentally competent, they don’t cease to be a trustee. They still need to be removed or replaced.
  • You should ask any trustee to resign if there is any cause for concern about the state of their health.
  • Schedule a discussion about a succession plan for trustees so you can act swiftly and in confidence if trustees need to be replaced or wish to retire.
  • Check to see if your trust deed has a clause stating who has the power to appoint and remove trustees.
  • Talk to our trust lawyers if the person who has the power to appoint and remove trustees is elderly or no longer able to meet their duties.
  • Consider the unexpected and act to protect the trust. An urgent application to the High Court can be very expensive if trustees need to be changed in a hurry.

If you have any other questions or concerns, contact our trust lawyers at your earliest convenience.

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