I’m a trustee – what happens if I lose the plot? | Pitt & Moore, Lawyers in Nelson

I’m a trustee – what happens if I lose the plot?

The good news for those getting older is that life expectancy is increasing.  The not-so-good news is that rates of dementia-related illnesses are also increasing.  The number of New Zealanders living with dementia will increase by close to 200%, to 170,000 by 2050, according to a recent report.

For those who are part of a family trust, the question of allowing for the possibility that a trustee may become mentally incapacitated and have to be removed from that role is not a pleasant one, but something we should consider, especially given some recent precedents that have gone before the courts in this area.

When it comes to considering dementia-related illnesses and preparing trust documents, it is now something that should be considered.  Many people think, erroneously, that they have this eventuality covered because they’ve given enduring power of attorney to someone. Two recent cases before the courts ( Marshall Family Trust [2017] NZHC 472 and Godfrey v McCormick [2017] NZHC 420) have confirmed that isn’t the case and that the only remedy may be for an application to be made to the court for them to remove the incapacitated trustee and, if appropriate, appoint a new trustee pursuant to the Trustee Act and for a vesting order under that Act.  Obviously, having to go to court in this instance can be expensive and inconvenient – at what can already be a very emotional and distressing time for those involved.

Even once the trustee has been removed and replaced there are some residual issues that can be tricky, such as taking the name off the property titles owned by the trust.  Land Information New Zealand (LINZ), who runs the title system, will not let an attorney for an incapacitated trustee sign documents on behalf of that trustee.

There is agreement that the incapacitated trustee situation is not satisfactory and the Law Commission is currently working on proposals to improve this, but in the meantime, the law as it stands, is what you should work with.

It may sound as if there are no ways to avoid this situation, but there are. 

If you’re about to set up a trust, make sure you consider carefully the implications of the wording around removing and replacing trustees.

If you already have a trust, take the opportunity sooner rather than later to review your trust deed documents.  It may not be too late to reword them to include workable provisions in respect of the removal of incapacitated trustees. Also, if you are facing the prospect of a trustee losing mental capacity then that trustee is better to retire when they are still mentally able to do so.

And finally, when you’re deciding on enduring power of attorney status for someone, don’t assume it will cover all legal areas - check with your lawyer.

Talk to us

Contact our Trusts Team today to discuss how we can assist you.

Disclaimer: This article should not be used as a substitute for professional legal advice tailored to your specific circumstances and should not be relied upon for that purpose.

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Rob Lane

Position: Partner
Email: rob.lane@pittandmoore.co.nz
DDI: +64 3 545 6713