Trusts are a popular form of asset protection in New Zealand. According to Ministry of Justice data, there are over 300,000 trusts in New Zealand. However, as New Zealand’s ageing population increases, so does the number of related diseases, like dementia. The importance of having enduring powers of attorney is well publicised, but what most people do not understand is that these documents do not extend to property which you own as a trustee.
This begs the question, what can you do if a trustee loses capacity?
Unfortunately, the answer is not necessarily straightforward and may depend on what the trust deed itself says. In any event, most of the time, a three-step approach is required:
- Remove the incapacitated trustee;
- Appoint a new trustee in the place of the incapacitated trustee; and
- Arrange for the assets held by the trust to be transferred to the new trustees. If there is real estate involved (such as the family home), this may ultimately require a vesting order of the High Court.
In a recent example, a client whose family trust owned his home was diagnosed with dementia. His enduring powers of attorney for both property and personal care and welfare (“EPAs”) were invoked, and the client was placed into care. At the time the EPAs were invoked, our client remained a trustee of his trust.
When it came to selling the family home, the client’s daughter (who had been appointed as her father’s attorney) was unable to sign the transfer documentation on her father’s behalf. The remaining trustees were also unable to sign the transfer documentation to give effect to the sale as the trust deed required that all trustee decisions were unanimous.
The remaining trustees appointed the daughter as a trustee of the trust pursuant to the powers contained in the Trustee Act 1956, but this act alone did not vest the trust’s property (i.e. the family home) in the new trustees. To do this, the new trustees were required to obtain a vesting order from the High Court, a time-consuming and costly matter. Once obtained, the family home became the property of the new trustees and the transfer documentation for the sale could be signed.
So how could the above have been avoided? In truth, short of our client resigning as a trustee, and appointing his daughter in his place prior to his diagnosis, or winding up the trust at that time, there is not much that could have been done.
Instead, the point to take away from this article is to be aware. Do not forget about your trust as part of your asset planning. Having a will and enduring powers of attorney is essential, but it is just as important to consider the implications of retaining your trusteeship when it might be time to retire and introduce other family members to the trust at the right time.
For more information
If you would like to discuss the matters raised in this article or need advice on your trust, please get in touch with Laura Blumenthal on 04 495 9944, or email firstname.lastname@example.org to arrange a consultation.
Postscript: The Trusts Act 2019 will take effect in January 2021 and it will be easier to remove incapacitated trustees from property titles from that time. Until then, however, the issues raised above will remain to be dealt with.