Know when to walk away
When Barack Obama was US president, he made an historic visit to Africa. One of the messages he repeated was that, under the US Constitution, he could only be president for eight years and this time limit is generally a good thing.
Obama was, of course, making an indirect reference to the tendency in some African countries for leaders to have themselves declared to be president for life. This, in Obama’s view, was not only unhealthy but also an excessive burden for one person to bear for too long.
Something similar could be said of some trustees. No one should want to be trustee for life. It’s useful for trustees to think about a succession plan: which trustees should we expect to retire or be replaced and who are the likely replacement trustees? Sometimes, likely future trustees are asked to sit in on trustee meetings to understand how the trust runs. (We have an article about the process for retiring trustees here.)
One of the biggest problems facing family trusts at present is the difficulty of replacing an elderly trustee who is no longer mentally competent. Even if still mentally alert, an elderly trustee may not be contributing a great deal. Trustees should be encouraged to retire if the job is becoming too much.
Old trustees don’t just fade away
Some people assume that a trustee who is no longer mentally competent, need not take part in trustee decisions any more. They seem to think the other trustees can ignore the trustee who is no longer able or willing to be involved. Legally that’s not the case. The trustee will remain trustee until he or she retires, or is replaced or removed. Most trust deeds have clauses allowing for removal and replacement of trustees. If someone remains a trustee, then he or she must join in all decisions, unless the trust deed allows for majority decision-making. Even then all trustees need to take part. One trustee cannot simply be ignored.
The problem of ageing trustees has been causing a number of problems. In many cases it has proved necessary to apply to the High Court to have a trustee removed. Even where the trust deed gives some other person (sometimes called appointer or protector) the power to change trustees it may still be necessary to apply to the High Court to get the incapacitated trustee’s name removed from a land title. In some cases, this has had to be done quite urgently because the other trustees have arranged to sell a property and suddenly find there is a problem completing the sale if one of the trustees can no longer sign.
Often it may not be possible simply to remove an incapacitated trustee. In some situations the law may require there to be at least two people acting as trustees. We can advise about what is required when a trustee is removed or replaced.
Fortunately some of these problems may be solved in future. The Trusts Bill, which was introduced to Parliament on 1 August, contains some processes which should simplify the replacement of trustees and correction of land titles. However the Bill has only just reached Parliament and no one knows how long it will take to bring this into law. (We have more detail on the Trusts Bill here [insert link to first article])
Points to remember
- A person does not cease to be a trustee just because he or she is no longer mentally competent: incapacitated trustees need to be removed or replaced.
- Ask trustees to resign if there is any cause for concern about their health status.
- Talk about a succession plan for trustees so that there will be other trustees coming along to replace those who need to retire.
- Check that the trust deed has a clause saying who is to have the power to appoint and remove trustees.
- If the person who has the power to appoint and remove trustees is elderly or giving rise to concerns, can a new appointor be named?
- Don’t leave it too late – it can be very expensive making urgent applications to the High Court if trustees need to be changed in a hurry.
If you’d like more advice on encouraging elderly trustees to retire or removing trustees, please be in touch.