Contents

Chapter 6
Appointment and removal of trustees

Retirement

Proposal
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.
Please give us your views on this proposal.

Current law

6.40The Trustee Act provides four ways for a trustee to retire. Most commonly, a trustee who wishes to be discharged will be removed and replaced under section 43 by someone with the power under that section. A trustee may also retire by deed with the consent of co-trustees or those with the power to appoint trustees (section 45). If co-trustees do not consent, or if there are no co-trustees, then a trustee may retire by “passing his accounts before the Registrar” of the High Court (section 46). The provisions under section 46 are seldom used, possibly because it is unclear what passing one’s accounts before the Registrar requires. If, in this situation, there is no-one able or willing to appoint new trustees, the retiring trustee may apply to the court for the appointment of a new trustee. This is particularly likely to be used for the retirement of sole trustees, who may not be empowered to appoint a replacement. Alternatively, a trustee could retire by applying under section 51 for the court to make a new appointment in replacement, if expedient.

Issues

6.41There are three major concerns that reform should address:

Options for reform

6.42The options considered were:

(a)including “that the trustee wishes to be discharged from office” as one of the possible grounds for removal;
(b)providing a separate process for retirement that requires the consent of co-trustees and the person with the power to appoint and remove trustees; and
(c)providing that a trustee may unilaterally retire provided that notice is given to the co-trustees and the person with the power to appoint and remove trustees, and provided that the property is transferred.

Discussion

6.43Submitters expressed support for improving the process under section 46 or creating a new, less expensive process for the retirement of trustees. Many submitters also noted that there could be substantial drafting improvements to this part of the statute, and that some of the problems could be partially remedied by more accessible and clear language. We were also informed that a major issue to be addressed is the transfer of assets when a trustee retires.

6.44KPMG noted that a trustee retains tax liability until the Inland Revenue is notified of the trustee’s resignation. The TCA and Greg Kelly Law noted that section 45 is of limited use because of the requirement for consent, and section 46 is of limited use because of the expense of a High Court application.

6.45Our preferred approach is to simplify the process for retirement and align it more closely with general provisions for removal. We therefore propose to include “wishes to be discharged from office” in the list of grounds for removal. It would not be mandatory to remove a trustee who wishes to be discharged. This would be left to the judgement of the person with the power to appoint and remove trustees. If a trustee wishes to retire but the person with the power to remove trustees refuses to discharge the trustee from office, the trustee will need to apply to the court. We consider that this is necessary to protect against a trustee abandoning a mismanaged trust without the consent of their co-trustees or the person with the power to remove and appoint trustees. When a trustee retires, the co-trustees or those with a power to appoint would wish to make sure that the trust is in order and need to carefully select a new trustee. Allowing unilateral resignation may disrupt the organisation of the trust.

6.46The preferred approach is consistent with the most commonly used approach to the replacement of trustees wishing to retire, which has the advantage of familiarity. While there is a conceptual distinction between removal and voluntary discharge, we consider that the simplest option is to have one process for removal regardless of the grounds.

6.47We have considered the option of allowing a trustee to retire unilaterally. This would remain available if the trust deed gives the retiring trustee the power to appoint their own replacement. However, we consider that as a statutory default, this approach may enable trustees to retire in inappropriate circumstances as an attempt to avoid liability for trust mismanagement. On the other hand, in most cases a court application would be unnecessarily complex and expensive. The preferred approach is designed to allow removal without court supervision unless there is disagreement.

6.48If a sole trustee wishes to retire and there is no-one with the power to remove and appoint trustees, the sole trustee would be able to appoint their own replacement by deed provided that the accounts are in order and there is no objection from beneficiaries. Our preferred approach is to give the Public Trust a supervisory role in this process. This would be an alternative to a court application, and could only be used if the trust affairs were in order and the retiring trustee has selected a replacement and complied with the notice provisions.

6.49The role of the Public Trust would be to review the accounts of the trust and the process by which the replacement has been selected, and confirm that the beneficiaries have been given notice of the replacement chosen and have been given the opportunity to object. The Public Trust should be empowered to set a fee for this service. If the beneficiaries object to the replacement, or if the accounts are in disarray, the trustee who seeks to retire would need to apply to the court.

6.50Notifying beneficiaries of the intended appointment and enabling beneficiaries to challenge a proposed new appointment would provide a safeguard to ensure that contentious cases receive court supervision. It will also prevent the unnecessary costs and delays of a court application in non-contentious cases. Consistent with P16(g) in chapter 4, a “reasonably representative sample of beneficiaries” has been proposed as the way of determining which the beneficiaries should be informed if it is not practical and reasonable to contact all adult vested beneficiaries. This provides a workable category of beneficiaries that the trustee can contact.