Contents

Chapter 6
Appointment and removal of trustees

Transfer of trust property

6.80The proposals on the transfer of trust property when a trustee is removed include some new elements, such as the role of the Public Trust, that were not explored in our Fourth Issues Paper. We are particularly interested in receiving comments on these elements.

Proposal
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 trustee(s) 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.
Please give us your views on this proposal.

Current law

6.81The transfer of property when a trustee is removed is addressed in sections 43, 47, 52, 57 and 59 of the Trustee Act. Section 47 provides that a deed of appointment or discharge operates to vest trust property. However, this section does not apply to many forms of property, including land under the Land Transfer Act 1952 (almost all land in New Zealand), or to any shares or stocks that are transferable only in books kept by a company or other body. This means that transfers of trust property will often be necessary, despite existing vesting provisions.

6.82Under section 52, the court can make an order vesting land or an interest in land in certain circumstances, such as where the trustee has been appointed by the court or where the trustee is a corporation that has ceased to carry out business. There is a similar provision under section 59 relating to the transfer of stocks and other intangible property, such as securities. Under section 57, a vesting order takes effect as if the property had been transferred by the previous trustee. Land interests must still be registered, and a copy of the order must be provided to the Registrar and entered on the register before it will take effect in vesting or transferring the interest.

Issues

6.83Based on comments in submissions, it appears that the current provisions work well for non-registered property interests, but there are issues in relation to the transfer of registered interests. The concern arises from a lack of clarity as to what documentation is required to transfer a registered interest without the involvement of the transferring owner. Registries are properly concerned to protect against wrongful transfer; however, different requirements for different registries can cause administrative problems for trusts. It can also cause difficulties for the registries in question, which would be potentially exposed to liability for a wrongfully executed transfer in the absence of a clear statutory process on which to rely.

6.84A court order addresses these issues, but has its own problems due to cost, delays, and a perceived inaccessibility for lay trustees. It is also questionable whether it is appropriate to use the court’s time for what is essentially an administrative matter.

6.85In the ordinary course of events, the departing trustee should transfer the property to the continuing trustee(s). There are a variety of reasons why this might not occur. For example, the departing trustee may be incapacitated or refuse to co-operate. In some cases, the departing trustee may simply have overlooked the need to transfer registered interests. Some time may pass before the continuing trustee(s) realise that they do not have legal title to the property, by which time the departing trustee may be unavailable. A process is required to transfer trust property when the departing trustee is unwilling or unable to participate; but it is also important to protect against wrongful transfer.

6.86The issue is how to provide for the efficient transfer of trust property when a trustee is removed or a new trustee is appointed. This issue particularly relates to registered property interests, such as interests in real property or shares or securities.

Options for reform

6.87The options we considered were:
(a)empowering the remaining trustees to transfer property, for example by creating a temporary power of attorney over assets held by the removed trustee, which is limited to the power to sign and register the documents necessary for the transfer of those assets to the new or continuing trustees;
(b)providing for vesting by operation of law through a statutory provision, which would have the effect of divesting the property from the trustee who is being removed, and vesting it in the new trustee.176 For registered interests, it would then be necessary to provide evidence of the vesting, such as a statutory declaration by the continuing trustee, in order to have the transfer registered. This is similar to the approach under section 47 but would apply to all property, including registered interests;
(c)creating a simplified court process for the transfer of trust property, possibly through Associate Judges or by giving the court the power to combine multiple proceedings into one and make a vesting order which would affect all trusts of which the trustee being removed was a trustee; or
(d)giving the Public Trust the power to issue a statutory vesting certificate confirming that the deeds of removal and appointment have been validly executed (not presented in the Fourth Issues Paper).

Discussion

6.88Submitters on the Fourth Issues Paper all considered that the current provisions could be improved. However, doubt was expressed as to whether a statutory vesting provision could be effective in New Zealand, because of the Torrens system of land transfer and the common practice of many institutions to require proof of registered title. Submitters noted that there are often issues with banks and other institutions refusing to accept that title has changed by operation of law. The comment was that regardless of legal effect, vesting provisions in legislation may not have practical effect.

6.89The preferred approach combines a statutory vesting provision with a duty on the departing trustee to transfer property, and a process for the Public Trust to issue a certificate of vesting. It would facilitate the transfer of trust property through providing an alternative to a court process for non-contentious cases.

6.90We have considered the option of a statutory vesting provision either as a stand-alone response or a part of a package of reforms. As a stand-alone, we are concerned that this approach would be inconsistent with the principle of the land transfer system that the register can be relied on to accurately reflect ownership, and risks creating an unhelpful distinction between legal ownership and registered ownership. However, we consider that this proposal could be usefully included as an element of the preferred approach provided that mechanisms are in place to effectively facilitate the transfer of registered interests.

6.91In most circumstances, the simplest way for trust property to be transferred will be for the departing trustee to transfer the property and register the change of ownership. Including this as an obligation in legislation might assist remaining trustees in dealing with a removed trustee who refuses to transfer ownership. However, transfer by the departing trustee is not a complete solution, as it could not be used when the trustee being removed lacked capacity or where it was discovered after removal that the property was not validly transferred.

6.92The preferred approach addresses these difficulties through empowering the Public Trust to issue a certificate of vesting on application by the continuing trustees. This would not supplant the role of the courts where there is a dispute and would only be available for non-contentious transfers. If there are objections from the departing trustee, the Public Trust should not grant the vesting certificate and the continuing trustees will need to apply to the court for a transfer order. The Public Trust may also refuse to grant a vesting certificate if the property arrangement is complex or it is not clear whether the trustee was properly removed.

6.93The Public Trust would check whether the deeds removing and replacing trustees have been validly executed. The continuing trustee(s) or the person with the power to appoint and remove trustees would also be required to complete a statutory declaration affirming that the former trustee was removed for a valid reason under the legislation. Notice would be provided to the former trustee, and if no challenge is received the Public Trust would issue the certificate.

6.94The certificate could be lodged with Land Information New Zealand (LINZ) or with share registries or similar as evidence of change of ownership. The legislation would provide that the certificate is sufficient proof of change of ownership (that is, registrars do not need to “look behind” the certificate), and it is not ineffective for failure of notice or any other requirements. Because the certificate would require a statutory declaration, there would be personal remedies against continuing trustees who dishonestly used a certificate of vesting to transfer property. Legislation would provide that no registry will be liable for relying on a statutory vesting certificate.

6.95This option is preferred to that of giving the continuing trustees or those with the ability to appoint and remove trustees the power to unilaterally transfer assets. While this option would have the advantage of simplicity, there are risks in forgoing any form of independent supervision. Combined with the power to remove trustees, this could freeze out a dissenting trustee and facilitate breaches of trust. Provided that an alternative simple process is available, these risks are not warranted.

6.96In most cases the transfer of trust property is an administrative problem and is not contentious. It is unnecessary for the court to be involved in these situations. The court’s involvement is appropriate when there is a dispute about the validity of the removal of the departing trustee. The preferred approach will retain the court’s supervision for these cases, as the continuing trustees will need to apply for a vesting order if the Public Trust refuses to issues a vesting certificate.

6.97While this proposal was not presented in the Fourth Issues Paper, we consider that it meets the concerns raised by submitters. We have undertaken targeted consultation with the Public Trust, LINZ, and private share registries. Based on this consultation we are of the view that this approach achieves a workable solution to the problems which arise in practice when trust property comes to be transferred. We are interested in receiving public comments on this proposal.

176The approach suggested by the British Columbia Law Institute, Committee on the Modernization of the Trustee Act A Modern Trustee Act for British Columbia (BCLI Report No 33, 2004) at 46.