Alex McDonald | Trust Lawyer | Auckland
“Thank you so much for referring me to Alex. She has been most accommodating, helpful and sensitive during this most unpleasant and difficult time.”
Alex is a skilful and experienced trust litigation lawyer. She possesses not only a solid understanding of the law but the negotiation and tactical skills which are critical to obtaining a just result. Alex regularly acts for clients in trust disputes including applications to remove trustees for breach of trust or where a trustee has become incapacitated as well as disputes involving breach of trustees’ duties and applications to vary trust terms.
Trust dispute basics
WHAT ARE TRUSTEES?
Trust disputes usually involve trustees. Trustees are the people who are in charge of the money or other property which is the subject of the trust – usually there are two or more trustees but sometimes there is only one. For all trusts, the trustees receive the trust property from someone (known as the settlor) to hold the property on trust for the benefit of others (known as the beneficiaries) on the terms of the trust. The settlor trusts the trustees to faithfully administer the trust for the purposes for which the trust was created.
Usually the terms of the trust are contained in a trust deed. Wills can also create trusts (called testamentary trusts) where the will-maker leaves property on trust for beneficiaries. This often happens where the beneficiaries are children, people with disabilities or the final beneficiaries (known as residuary beneficiaries) where trust property is given to another beneficiary (often a spouse or partner) for the duration of that beneficiary’s life.
Importantly, trustees can also be beneficiaries. The mere fact that a trustee is also a beneficiary doesn’t mean that the trustee has a conflict of interest that disqualifies him or her from being a trustee.
WHAT ARE THE DUTIES OF TRUSTEES?
Trust disputes often involve breach of trustees’ duties:
- to act honestly and in good faith for the benefit of the beneficiaries.
- to account to the beneficiaries for the administration of the trust. This means that trustees need to keep proper financial accounts and records which show how the trustees have dealt with the trust fund. This duty is owed to all beneficiaries, including discretionary beneficiaries
- to give information to beneficiaries about investments, accounts and other trust records
- not to personally profit (sometimes called self-dealing) from the trust but this is often subject to the right of a professional trustee (e.g. lawyer or accountant) to charge reasonable fees for time spent in administering the trust
- to understand and act in accordance with the terms of the trust. To do that trustees need to ask themselves the right questions and make sure they have sufficient information to answer the questions. If trustees are in doubt or in difficulty, they should take advice from lawyers, accountants and other experts and, if need be they should seek a direction from the Court about what should be done
- to act responsibly, with due diligence and prudence. This usually means that trustees need to handle the trust property in the same way that an ordinary prudent person of business would do so
- to treat all beneficiaries fairly. Usually that means that trustees need to treat beneficiaries even-handedly and not to prefer the interests of one beneficiary of the same class over another
- not to mix personal assets with trust assets. That means that the trustees cannot treat trust assets as if they were their own.
WHAT CAN THE COURT DO WHERE TRUSTEES HAVE BREACHED DUTIES?
Trust barristers are frequently involved in applications to the High Court for orders to make sure that trusts are managed and administered properly.
The powers of the High Court include powers to:
- appoint new trustees
- make vesting orders
- authorise dealings with trust property
- authorise variations of trust
- make orders for costs
POWER OF THE COURT TO REMOVE AND REPLACE TRUSTEES
Trust barristers dealing with trust disputes are often required to make applications to the High Court on behalf of beneficiaries to remove and appoint replacement trustees. As any experienced trust barrister will advise you, the High Court has broad discretionary powers and the likelihood of success is very fact dependent.
The Court has specific to remove and appoint replacement trustees where a trustee:
- has misconducted himself or herself in administering the trust;
- is convicted of a crime involving dishonesty under the Crimes Act 1961;
- is a mentally disordered person within the meaning of the Mental Health (Compulsory Assessment and Treatment) Act 1992 or whose estate or any part thereof is subject to a protection order made under the Protection and Personal Property Rights Act 1988 (see also COURT’S POWER TO REMOVE & APPOINT WHERE TRUSTEE HAS INCAPACITY below);
- is a bankrupt; or
- is a corporation which has ceased to carry on business or is in liquidation or has been dissolved.
More importantly, the Court has a broad discretion to remove and replace trustees where it is expedient to do so. So, for example, where a brother and sister were the trustees (and beneficiaries) under a will and the sister was living in the house which was the major asset of the trust and the brother wanted the property sold, the Court removed both the brother and sister as trustees and appointed a replacement trustee.
Misconduct, breach of trust, dishonesty or unfitness need not be established to obtain an order on the expediency ground. The Court can remove or replace trustees simply by having regard to suitability, practicality and efficiency. Hostility and deadlock are other more common examples where courts have been willing to remove and replace trustees.
As any experienced trust barrister will advise you, the Court is likely to consider:
- the express or implied intentions of the settlor. In other words what did the person establishing the trust want to happen?
- that there must be neutrality between beneficiaries
- the best means of promoting the purposes of the trust
- the welfare of the beneficiaries.
Trustees who actively oppose their removal and replacement by beneficiaries need to be aware that if they are found to have breached their duties, they can find themselves having to pay not only their own costs but the full costs (known as indemnity costs) of the beneficiaries.
COURT’S POWER TO REMOVE & APPOINT WHERE TRUSTEE HAS INCAPACITY
In addition to its powers to the remove trustees in trust disputes, the High Court, is commonly asked to remove and appoint trustees, or vest trust property in new trustees where a trustee has moderate to severe dementia or other mental incapacity and the trust deed or s 43 of the Trustee Act 1956 is insufficient to do so. An experienced trust dispute barrister can assist with that application.