What happens when a trustee loses capacity?

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CAPACITY SIMPLIFIED

What happens when a trustee loses capacity? The Trusts Act 2019 comes into effect on the 1st February 2021. Among other things, it aims to simplify this process. If you have questions or concerns about your trust, contact our friendly team today.

By Sheryl Ali

About 15 – 20 years ago, having a trust was fashionable and this created a rise in the number of trusts established in New Zealand. With dementia and other age-related issues affecting many New Zealander’s, a considerable proportion of those trusts are facing difficulties when a trustee loses capacity.

Under the current Trust Act 1956, removing a trustee who has lost capacity is complex, may often result in court procedures and ends up being costly and time-consuming. The Trusts Act 2019 (“the Act”), which comes into effect on the 1st February 2021 aims to simplify this process.

What happens when a trustee loses capacity?

S104 of the Act now makes it compulsory to remove a trustee if they lose their capacity to perform the functions of a trustee.

The person with the power to remove trustees must give notice and inform the trustee that they are being removed. The removal will occur 20 working days from the notice being received. Immediate removal may happen where there is a property manager or trustee corporation managing the trustee’s property.

If your trust deed provides a different method of removal, you may elect to choose that method instead of the process in S104 of the Act.

What happens when the person who has the power to add and remove trustees, loses capacity?

A common difficulty observed is when the trustee who has lost capacity is also the person named with the power to add and remove trustees in the trust deed.

S92 of the Act gives the following persons the power to remove a trustee:

  • The person defined in the trust deed with the power to add and remove trustees;
  • If there are no persons defined or if that person is unwilling or unable to act, then all remaining trustees; and
  • If there are no persons defined the trust deed and no remaining trustees who can act, then:
    • any person holding an enduring power of attorney in relation to property over a person who is mentally incapable; or
    • a property manager appointed under the Protection of Personal Property Rights Act 1988; or
    • a liquidator if the remaining trustee is a corporate trustee under liquidation.

If all the avenues above have been exhausted and the trustee who loses capacity does not have an enduring power of attorney or property manager under the Protection of Personal Property Rights Act 1988, court proceedings are unavoidable. If you have questions or concerns about your trust, contact our friendly team now. It is also important to have your wills and EPA’s updated.