Part 2
Trustees

Appointing and removing a trustee

3.8Chapter 6 addresses topics relating to the appointment and removal of trustees. We have been advised that these areas cause problems in the day to day administration of trusts due to a lack of clarity in statutory default provisions or processes, or an out-dated approach that no longer meets the needs of modern trust practice.

3.9Our preferred approach is to modernise the statutory defaults for these areas of trust administration, and to provide more robust guiding principles and mechanisms for appointment and removal, and the transfer of trust property. For this reason the proposals in this chapter are more detailed and technical than others in the paper.

3.10Some of the proposed new statutory defaults will include mandatory aspects, such as the requirement that trustees be over the age of 18 years. We also propose the legislation give the Public Trust certain administrative roles in relation to the appointment and removal of trustees.

3.11Although our proposals are separated into a number of topics, they have been designed to work together and are best read as an overall package.

Acceptance and rejection of trusteeship
P21 New legislation should:
(a)clarify that if a trustee does not accept the trusteeship within three months of receiving notice of his or her appointment, he or she will be deemed to have disclaimed the trusteeship;
(b)provide that disclaimer of trusteeship need not be in writing, but must be communicated to the appropriate person (for instance, the settlor or appointer, as the case may be under the trust deed) in clear and unambiguous terms;
(c)provide that acceptance may be implied through conduct;
(d)allow this default provision to be varied by the trust deed;
(e)provide that if a trustee disclaims, the property vests in the remaining trustees, or if there are no other trustees, reverts to the settlor on the terms of the trust; and
(f)use plain English terminology and refer to “rejecting” rather than “disclaiming” the trusteeship.
Who may be appointed as a trustee?
P22
(1)New legislation should restrict appointment based on capacity to be a trustee. The following categories of persons will be precluded from appointment as a trustee:
(a)a person under 18 years of age;
(b)an undischarged bankrupt;
(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 section 32 or 33 of that Act; and
(d)a corporation which is in receivership or in liquidation; and
(2) provide that any natural person or body corporate may be a trustee unless one of the grounds above applies.
Removal of a trustee
P23
(1) New legislation should impose a duty on persons with the power to appoint and remove trustees to remove a trustee when the trustee is incapacitated and becomes 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.
(2) New legislation should provide that the court, or those with the power to appoint and remove trustees may, if it is desirable for the proper functioning of the trust, remove a trustee and appoint a replacement in the following circumstances:
(a)the trustee refuses to act, fails to act, or wishes to be discharged from office;
(b)the trustee, being a corporate trustee, enters into receivership, enters into liquidation, ceases to carry out business, is dissolved, enters into a compromise with creditors under Part 14 of the Companies Act 1993, enters into voluntary administration under Part 15A of that Act, or does not satisfy the solvency test as defined in section 4 of the Companies Act;
(c)the trustee is no longer suitable to continue to hold office as a trustee because of circumstance or conduct, including but not limited to when the following occurs:
(i) the whereabouts of the trustee becomes unknown and the trustee cannot be contacted;
(ii) the trustee is not capable of fulfilling his or her duties by reason 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;
(vi) the trustee is held by the court to have misconducted himself or herself in the administration of the trust; or
(vii) the trustee, being a lawyer, accountant or financial adviser, is found to have materially breached the applicable ethical standards of that profession.
(3) New legislation should retain the court’s general discretion to remove trustees if expedient, in order to capture circumstances which may not be foreseen and may not be included in the grounds for removal above.
Retirement
P24 New legislation should provide that:
(1) if a trustee wishes to be discharged from office, he or she may be removed by deed by those with the power to do so.
(2) if a trustee wishes to be discharged from office but those with the power to remove and appoint trustees explicitly refuse to execute the removal document, the trustee must apply to the court.
(3) if a sole trustee wishes to be discharged from office and there is no-one with the power to remove and appoint trustees under the trust deed, the following process for retirement will apply:
(a)the trustee who wishes to retire will first select one or more suitable persons as a replacement trustee(s) and notify all adult vested beneficiaries (where it is reasonable to do so), or a reasonably representative sample of beneficiaries, of the person(s) selected;
(b)beneficiaries notified will have 20 working days in which to object to the replacement chosen;
(c)if no beneficiaries object, the trustee who wishes to retire will then apply to the Public Trust to confirm that beneficiaries have been given due notice of the replacement selected, and that the trust accounts are in order;
(d)if due notice has been given and the accounts are in order, the retiring trustee may be discharged and the replacement appointed through a deed executed jointly by the trustee being removed and the trustee being appointed;
(e)if the beneficiaries object to the replacement selected or if the accounts are in disarray, removal by deed will not be available and an application to the court will be necessary.
(4) The legislation should authorise the Public Trust to set reasonable costs for the services provided.
Who may remove a trustee and appoint a replacement?
P25 New legislation should:
(1) provide a hierarchy of persons with the power to remove and appoint trustees by deed when the grounds under the legislation are met:
(a)the person nominated for the purpose of appointing new trustees by the deed creating the trust; or if none, or if unavailable or unwilling to make a decision;
(b)the surviving or continuing trustees; or if none, or if unavailable or unwilling to make a decision;
(c)the personal representative of the trustee being removed;
(2)define “personal representative of the trustee being removed” to include the following persons:
(a)the executor or administrator of a trustee who died while in office;
(b)a property manager appointed over the trustee under the Protection of Personal and Property Rights Act 1988;
(c)the holder of an enduring power of attorney over property of an incapacitated trustee; and
(d)the liquidator of a corporate trustee who enters into liquidation;
(3)provide that if the personal representative of the trustee being removed is undertaking the removal, the following process for removal will apply:
(a)the personal representative will select one or more suitable persons as a replacement trustee(s) and notify all adult vested beneficiaries (where it is reasonable to do so), or a reasonably representative sample of beneficiaries, of the person(s) selected;
(b)beneficiaries notified will have 20 working days in which to object to the replacement chosen;
(c)if no beneficiaries object, the personal representative will then apply to the Public Trust to confirm that beneficiaries have been given due notice of the replacement selected, and that the trust accounts are in order;
(d)if due notice has been given and the accounts are in order, the trustee may be discharged and the replacement appointed through a deed executed by the personal representative;
(e)if the beneficiaries object to the replacement selected or if the accounts are in disarray, removal by deed will not be available and the personal representative will be required to apply to the court to remove the trustee and appoint a replacement. The court will be able to make any other necessary directions about the management of the trust;
(4)empower the Public Trust to provide the personal representative or liquidator of the trustee being removed with advice as to the process for the selection of a replacement, and enable the Public Trust to set reasonable costs for the services provided.
Exercise of power to appoint trustees
P26 New legislation should:
(1) impose a duty of good faith and honesty on those exercising a power to remove and appoint trustees, whether the power is exercised under statute or under the trust deed. This will apply to the decision to remove a trustee, and the selection of a replacement or the decision not to replace the trustee, as the case may be;
(2) provide that the court may remove and replace someone with the power to appoint trustees under the trust deed if that person breached the duty of good faith, or if that person has been removed in their capacity as a trustee, or if otherwise expedient; and
(3) provide that a person with the power to appoint trustees would be entitled to apply to the court for directions in the exercise of that power, for example if there was a perceived conflict of interest.

Numbers of trustees
P27 New legislation should:
(1) allow trustees to be removed without being replaced provided that this is in the best interests of the trust, taking account of the suitability of remaining trustee(s), and other relevant circumstances;
(2) leave minimum number provisions to the trust deed, rather than including a statutory default;
(3) provide that a sole trustee may be appointed at the outset and that if a sole trustee is removed or dies in office, he or she must be replaced, and may be replaced with more than one replacement trustee unless the trust deed provides otherwise; and
(4) prevent the circumventing of the rules on minimum numbers of trustees contained in a trust deed by providing that as a matter of interpretation, a trust deed which requires two or more trustees will be taken to mean two or more persons exercising independent judgement. For the avoidance of doubt, the legislation could provide that any two natural persons will be considered to be exercising independent judgement.
Transfer of trust property
P28 New legislation should:
(1) impose a duty on a departing trustee to transfer property to the continuing trustee;
(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 trustee(s);
(3) empower the Public Trust to issue a statutory certificate of vesting confirming that the deeds which remove the departing trustee and appoint the continuing trustee(s) have been validly executed, if trust property has not been otherwise transferred by the departing trustee;
(4)provide that the statutory certificate of vesting shall be sufficient and complete proof of change of ownership of property, and:
(a)must be accepted as complete documentation under section 99A of the Land Transfer Act 1952; and
(b)must be accepted as proof of transfer of any other registered interest recorded in a register under New Zealand law;
(5)require that after the deed of removal has been executed, 20 working days’ notice must be given to the departing trustee from whom title is being transferred before the statutory certificate of vesting may be issued. If the departing trustee objects to the issuing of a certificate within the 20 day period the Public Trust will not be able to issue the vesting certificate and the continuing trustees must instead apply to the court. However, a vesting certificate that has been issued will not be ineffective for failure of the notice provisions;
(6)provide that the departing trustee must be given the documents demonstrating that the property is no longer in his or her name once transfer and registration have been completed (for example, a copy of the certificate of title);
(7)provide that 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;
(8)provide that the Public Trust may refuse to grant a vesting certificate when the property arrangement is complex or it is not clear whether the trustee was properly removed, in which case the continuing trustee(s) must apply to the court for a transfer order; and
(9)enable the Public Trust to set reasonable costs for issuing a statutory vesting certificate.