New Zealand, like many other countries, has an ageing
population. This is giving rise to an increasing number of elderly
people losing their mental capacity.
When a trustee of a trust loses their mental capacity, it can
lead to complications with proper administration of the trust, or
in some cases, administration of the trust will become
Many trust deeds provide that trustee decision-making must be on
a unanimous basis, however this becomes impossible when one trustee
has lost mental capacity and is not able to participate in the
trustee decision-making. When this happens, the trust will often be
in limbo until such time as the trustee who has lost mental
capacity is removed as a trustee of the trust.
Some trust deeds give the power to appoint and remove trustees
to the settlor of the trust. However, if the trust deed does not
make specific provision for the power to appoint and remove
trustees, the provisions under section 43 of the Trustee Act 1956
(Act) shall apply. This section provides that the
continuing trustees shall have the power to appoint a new trustee,
in place of the trustee who has lost mental capacity.
If the removal and replacement of a trustee who has lost mental
capacity becomes inexpedient, difficult or impracticable, the High
Court will be able to alleviate the situation by exercising its
powers under section 51 of the Act.
The provisions of sections 43 and 51 of the Act can only be
relied upon when the trustee who has lost mental capacity is being
replaced with a new trustee. Nonetheless, an application can be
made to the High Court for an order not to replace the trustee who
has lost mental capacity with a new trustee.
The process to remove and replace a trustee may seem quite
simple, however this is not the case, especially when the
trustee's name needs to be removed from the title to the
trust's property. A trustee who has lost mental capacity cannot
sign any documentation to transfer the trust's property to the
continuing and new trustees.
Many of us may think that an attorney appointed under an
enduring power of attorney will be authorised to sign trust
documentation on behalf of the trustee who has lost mental
capacity, however, this is not the case. An attorney appointed
under an enduring power of attorney can only act in relation to the
trustee's personal property, which does not form part of the
trust's property. This is also the view of Land Information New
Zealand who oversees our land transfer system, and therefore, an
attorney appointed under an enduring power of attorney is not
authorised to sign land transfer documentation on behalf of the
trustee who has lost mental capacity.
This leads to the only possible way to rectify the status of the
trust's property, being an application to the High Court for a
vesting order under the provisions of section 52 of the Act. The
provisions of section 52 of the Act provide that the High Court can
make an order to vest the trust's property in the continuing
and new trustees.
An application to the High Court is a time consuming and
expensive exercise, especially when a trust has no income and only
owns a family home. The Law Commission is aware of the costly and
unsatisfactory mechanism of dealing with trustees who have lost
mental capacity, and proposals have been put forward to rectify
this issue. However, until such time as a final decision is made by
the Law Commission, trustees need to ensure that trustee meetings
take place on a regular basis to ensure that all trustees are able
to continue to act as trustees, and that a trustee whose health is
deteriorating retires before it becomes necessary for the other
trustees to apply to the High Court.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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