How do I get out of this? – Trustee Retirement

How to retire as a trustee?Kevin House, Partner
You may have been approached by friends or relatives requesting you to be an “independent” trustee for “their Trust”. You may have agreed to the request to be helpful, as most people in that position do.

The obligations of a trustee however are not to be accepted lightly. The basis on which the trust was formed, what it owns, and how it operates must be clearly understood. That requires some detailed investigation and discussion with the appointors and other trustees. There needs to be an understanding of what is of most importance to the trust management and consideration, in particular whether the trust has operated in the past on a rather informal basis. The question to ask is Do I have the confidence that the other trustees will do the right thing and how can I cope with possibly having to disagree with a proposed course of action, or vote against a formal proposal?

Bear in mind that decisions of trustees are unanimous unless the trust deed provides for a different mechanism, such as a majority vote. If you are in the uncomfortable position where you do not wish to remain as a trustee, getting out may not be simple if the party holding the power of appointment is not willing to co-operate. Under the Trustee Act 1956, the ability to resign is firstly dependent on the trust instrument which takes precedence. Otherwise the Trustee Act governs resignation.

Under the Act, if there are two or more trustees, a trustee wishing to resign may retire by deed with the consent of his or her co-trustees and any other person who has power to appoint trustees. There is no requirement to appoint a replacement trustee. There must be at least two trustees or a trustee corporation remaining, although this is not required if there was originally a single trustee. If it is not possible to get that consent then there is provision for a trustee wishing to retire to apply to the High Court to enable the retirement to occur.

Under the proposed new Trustee Act the position is likely to be more flexible in that a trustee wishing to retire may be discharged in writing by a person with the power to remove trustees. If there is no such person able or willing to act the trustee can be discharged by the remaining trustees, or if there is no person able or willing to act and the trustee’s retirement will reduce the number of trustees below the minimum number of trustees required by the trust deed the trustee can be discharged, by the retiring trustee and a replacement trustee (selected by the retiring trustee) together. Finally, if there is no person authorised as above, or that person is unable or unwilling to act, then subject to the minimum number of trustees required by the terms of the trust (if any) remaining, discharge can occur by the retiring trustee alone executing a deed of retirement. There is also the fall back position of being able to apply to the High Court for removal.

The time to consider the ease or difficulty of retirement as a trustee is when the request is made that you take on that role. That involves consideration of the precise terms of the trust deed in relation to the number of trustees required (if any) and how trustees are appointed and removed, including how they may resign, and an understanding of the fall back position provided by what will be the new Trustee Act. The acceptance of a trusteeship should not be done lightly and should always be in the context of how to easily retire should the trusteeship be unsatisfactory to the person appointed.

The information contained in this paper is necessarily of a generalised nature and specific advice should be sought in relation to any particular situation.