An elderly man started to develop dementia and was unable to manage his own welfare or financial affairs.  He had a family trust that owned the home he lived in.  He and his daughter were the Trustees. 

He had set up Enduring Powers of Attorney for Property, and Personal Care and Welfare, while he had capacity, but had not considered his trusteeship of the family trust at that time. 

When he lost capacity completely, his daughter decided that the Trust should sell the home as her father needed to go into a rest home. 

When she met with her lawyer, she was surprised to learn that:

  • She couldn’t use the Enduring Powers of Attorney for trustee matters, so she could not sign documents on her father’s behalf to sell the property, nor transfer her father’s name off the title to the property;
  • She could not remove her father as a Trustee of the Trust for the same reason.  There was also no specific power in the Trust Deed to remove or replace him if he was incapacitated. Even if there had been such a power, there would still be separate issues with removing his name from the title to the property; and
  • The Trust Deed provided that all decisions of Trustees had to be made jointly which basically meant the Trust was ineffective until the incapacitated Trustee had been removed.

Clearly her father was not able to perform his duties as Trustee, but yet she apparently couldn’t easily remove him.

What can Trustees do if they find themselves in this situation?

Trustees can apply to the High Court for an order removing and replacing an incapacitated Trustee.  The High Court will look at whether the Trustee has in fact lost mental capacity, and whether the appointment of the new Trustee is consented to by all concerned parties.

The Court may also make a further order removing the incapacitated Trustee’s name from the title to any trust property, and may order that the title be transferred into the name of the new Trustees.

How can you prevent this situation?

It is important that if you think a Trustee is at risk of losing capacity, you act sooner rather than later as the process of applying to the High Court is costly and time-consuming.  If you act early, a Trustee can agree to retire and can sign documents to remove themselves from the title to any trust property while they have sufficient capacity.

Lindsey Mills
Senior Legal Executive
Wellington