What happens if a whānau trust becomes dysfunctional?

A father appointed his daughter by Will as a replacement trustee of his whānau trust alongside her uncle.  The two trustees started to have disagreements and, a result of this tension, the Trust neglected to pay the outgoings on the land.

The uncle refused to give his niece any of the trust documentation (including the trust deed), while she was concerned about his capacity to be a trustee.

She sought legal advice about her rights and obligations as a trustee.

Depriving a trustee of important trust documents is a breach of the Trust Act 2019. As a trustee, you are presumed to have access to basic trust information. Without this, a trustee would be unable to administer the trust effectively and to ensure that they are maintaining their responsibilities to the beneficiaries.

Under both the Trust Act 2019 and the Te Ture Whenua Māori Act 1993 trustees are subject to mandatory duties such as:

1. Being familiar with the terms of the trust deed/order;
2. Adhering to the terms of the trust;
3. Acting impartially and fairly to beneficiaries;
4. Exercising the care, diligence and skill that a prudent person would in the same situation;
5. Not delegating duties without authorisation;
6. Acting unanimously (or by majority in some situations);
7. Paying trust funds to the right persons;
8. Keeping proper accounts and providing information; and
9. Not remunerating themselves without authorisation.

A trustee or beneficiary of a dysfunctional whānau trust can apply to the Māori Land Court for the trust to be reviewed.  Ideally both trustees would agree to be removed and new trustees appointed.

If the trustees do not agree, then the Court may make an order for their removal if they are satisfied that the trustees have either lost capacity or the removal is desirable for the operation of the trust, in addition to one of following criteria being met:

1. The Trustee refuses or fails to act as a Trustee; or
2. The Trustee becomes an undischarged bankrupt; or
3. The Trustee is a corporate Trustee that is subject to an insolvency event; or
4. The Trustee is no longer suitable to hold office because of the Trustee’s conduct or circumstances.

When determining who should be appointed as a replacement trustee, you need to ensure that that they are able to comply with their obligations.  They must be available to have regular meetings with the other trustees.  No person can be appointed as a Trustee if they have been convicted of dishonesty crimes.

A trustee has fiduciary obligations to act in the best interests of the beneficiaries.  A dysfunctional trust can have serious implications for beneficiaries. If trustees are not complying with their duties, then they can be held personally liable.

If you are a trustee or a beneficiary of a whānau trust that has become dysfunctional, it is important that you obtain legal advice to discuss your options going forward.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.

Charlotte Cameron and Brianna Cadwaller