When a trustee of a family trust becomes unable to fulfill their duties, it can create uncertainty and disruption for the Trust. For instance, a trustee diagnosed with dementia and deemed incapable of understanding their responsibilities raises important legal questions about the next steps. To maintain the Trust’s proper function, it is essential to address the removal and replacement of trustees.

A trustee’s role is pivotal in ensuring the Trust operates lawfully and effectively. If a trustee loses capacity or fails to perform their duties, their removal becomes necessary to prevent dysfunction or legal breaches within the Trust. However, the process for removing and appointing trustees depends on the Trust Deed and the powers outlined within it.

What Is the Power of Appointment?

The Power of Appointment refers to the authority to appoint and remove trustees. This power is typically held by the Settlor (the person who created the Trust), though it can also be assigned to another individual under the terms of the Trust Deed.

The Trust Deed will usually specify what happens to the Power of Appointment if the person holding it passes away or loses capacity. In many cases, this power passes to the executor of the person’s Will or a nominee named in the Will.

Under New Zealand’s Trusts Act 2019, if no one is designated with the Power of Appointment in the Trust Deed, the remaining trustees have the authority to remove a trustee.

Grounds for Trustee Removal

The Trusts Act 2019 outlines the conditions under which a trustee may be removed:

• Discretionary Grounds (Section 105):
  • Refusal or failure to act as a trustee.
  • Becoming an undischarged bankrupt.
  • Corporate insolvency events.
  • Unsuitability due to conduct or circumstances.
• Compulsory Grounds (Section 104):
  • Loss of capacity to perform trustee duties.
  • Failure to delegate powers in a legally authorized manner.

The removal process must be done in writing by the person holding the Power of Appointment, following the provisions of the Trust Deed or the Trusts Act.

Legal Guidance for Trustee Removal

If you are unsure who holds the Power of Appointment or how to exercise it, seeking legal advice is essential. An experienced lawyer can guide you through the process to ensure compliance with legal and Trust Deed requirements. Additionally, it is vital to document the succession of the Power of Appointment in your Will to avoid future complications.

Reputable law firms in Masterton and Wellington offer fixed-price initial consultations to help clients understand their options and navigate these complex issues cost-effectively.

Need guidance on the RMA changes or their implications? Contact Core Legal Wellington for expert advice tailored to your needs.