Appointment and removal of trustees
Acceptance and rejection of trusteeship
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.
Please give us your views on this proposal.
6.4Under case law, no-one can be compelled to be a trustee. To give effect to this principle, trusteeship does not commence until the appointment is accepted. Acceptance may be express or may be implied by conduct. There are some forms of conduct which clearly constitute an implied acceptance of the role of trustee, such as dealing with the trust property. An appointed trustee who does not want to accept the trusteeship may disclaim (reject) the office, in which case the trust property will vest in the remaining trustees, or revert to the settlor if there are no other trustees. The rejecting trustee is entitled to recover the expenses of the rejection from the trust fund and will not be subject to liability as a trustee. After rejection, the person with the power to appoint trustees, or the court, may appoint a new trustee. There is no time limit for rejection, but once the trusteeship has been accepted (including through implication) it cannot later be rejected, although it can be resigned.
6.5There is case law which supports the proposition that inaction for a long period of time will be presumed to constitute rejection. However, there is also case law for the proposition that a long period of inaction will be presumed to constitute acceptance (because there has been no express rejection in this time). Whether there has been an implied acceptance or an implied rejection will be assessed on the facts, and the onus will be on the party alleging rejection.
6.6It is desirable to resolve this ambiguity and clarify the rules for rejection. The law needs to clearly differentiate between circumstances which constitute an implied rejection and circumstances which constitute implied acceptance. The central question is whether a trustee should be presumed to have rejected the office unless there is a clear indication of acceptance, or vice versa.
Options for reform
6.7The options we considered are:
(a)providing that inaction is deemed to be a rejection of office;
(b)providing that express acceptance of office is required; and
(c)providing that an absence of positive steps to reject the office after sufficient notice of appointment is received will constitute acceptance.
6.8Submitters to the Fourth Issues Paper had varying views on this issue. Some, including the Auckland District Law Society (ADLS) and the New Zealand Law Society (NZLS) considered that codification or restatement was not necessary. The Ministry of Social Development (MSD) submitted in favour of deemed disclaimer if no action is taken to accept the trust within six months. Greg Kelly Law and the Trustee Corporations Association (TCA) preferred the approach of presumed acceptance in the absence of express rejection within a certain time period, to protect the interests of beneficiaries. KPMG submitted in favour of requiring express acceptance.
6.9Our preferred approach is based on the United States model code, shown below with our proposed changes.
ACCEPTING OR DECLINING REJECTING
(a)Except as otherwise provided in subsection (c), a person designated as trustee accepts the trusteeship:
(1)by substantially complying with a method of acceptance provided in the terms of the trust; or
(2)if the terms of the trust do not provide a method or the method provided in the terms is not expressly made exclusive, by accepting delivery of the trust property, exercising powers or performing duties as trustee, or otherwise indicating acceptance of the trusteeship.
(b)A person designated as trustee who has not yet accepted the trusteeship may reject the trusteeship. A designated trustee who does not accept the trusteeship within a reasonable time after knowing of the designation three months of receiving notice of the designation is deemed to have rejected the trusteeship.
(c)A person designated as trustee, without accepting the trusteeship, may:
(1)act to preserve the trust property if, within a reasonable time after acting, the person sends a rejection of the trusteeship to the settlor or, if the settlor is dead or lacks capacity, to a qualified beneficiary; and
(2)inspect or investigate trust property to determine potential liability under environmental or other law or for any other purpose.
6.10This approach retains the settled position under case law that a trustee does not assume the office until the office is accepted, while clarifying that inactivity is considered to be rejection. This option continues to allow acceptance to be implied through conduct rather than requiring express acceptance. It also provides additional clarity by listing some of the circumstances in which acceptance may be implied, such as accepting delivery of trust property. This would be the default provided in new legislation, however, a trust deed could provide an alternative approach (for example that the trustee must accept the office in writing within 20 working days).
6.11We consider that new legislation should stipulate a defined period of time after which inaction will be treated as rejection rather than a “reasonable time” as in the United States Model Code. This provides greater certainty for all involved, and ensures that a named trustee has clear warning of the date by which he or she must accept the office. If a flexible formulation was adopted then a trustee who did not accept promptly might be considered to have disclaimed, despite an intention on his or her part to accept before a reasonable time passes. We consider that three months provides the appointed trustee with a sufficient opportunity to accept the appointment. Three months is also consistent with the period provided under section 19 of the Administration Act 1969 for the proof of a will by an executor.
6.12We rejected the alternative option of requiring written acceptance of trusteeship. We consider that requiring written acceptance is not suitable as the statutory default, although it may be appropriate for some trusts. Requiring written acceptance could create practical problems, and would pose risks where an appointed trustee has assumed the office and begun dealing with trust properly but without formal written acceptance.
6.13Option (c) also creates risks. It could lead to liability being imposed on a person who had no intention of accepting the trusteeship.
6.14There may be rare cases where an appointed trustee intends to accept but does not communicate this intention within the required time and is therefore considered to have rejected. In our view this is a less problematic and more easily remedied outcome than the risk of imposing duties on a trustee who does not intend to accept the office.