Trustees’ decisions must be unanimous. All trustees of a trust must participate in the decision-making process and sign any legal documents necessary to effect the decisions. If a trustee becomes mentally incapable then it is not possible for the other trustee or trustees to make decisions - until the mentally incapable trustee is removed or replaced. Until then the status quo will prevail.
Trustees cannot delegate their decision-making powers except in very limited circumstances. It’s a common misconception that someone holding a power of attorney may sign legal documents for a trustee who has become mentally incapable. This is not the case. Even when a mentally incapable trustee has been removed as a trustee (which can be done either according to the terms of the trust deed or the Trustee Act 1956) no-one can sign legal documents to register a transfer, mortgage or dealing with the trust’s land on behalf of a mentally incapable trustee. An application to the High Court under section 52 of the Trustee Act to vest the land in the names of those trustees entitled to own the land is necessary before any dealing in the land can be registered.
Ron and Kath left it too late
Ron and Kath’s trust has owned their farm for 30 years. Ron and Kath are trustees. Kath’s health has deteriorated over recent years, but Ron is confident their affairs are in order as they have kept their Wills up to date and have made Enduring Powers of Attorney for Property and Care and Welfare matters. Under the Enduring Powers of Attorney Ron and Kath have appointed each other to make decisions and sign legal documents if they become mentally incapable. Their daughter is their successor attorney i.e. she is the back up if Ron or Kath can’t act.
Kath has now been diagnosed with Alzheimer’s disease and has gone into residential care. Ron is struggling to pay for Kath’s care at $45,000 per year because Kath doesn’t qualify for the WINZ residential care subsidy. Ron decides it’s time to sell the farm and lists it with a real estate agent. He signs the listing agreement on behalf of Kath, telling the agent that he can do so under the Enduring Power of Attorney. Ron phones his lawyer to tell her that she might be receiving an agreement for the sale of the farm to review and tells her why he is selling the farm.
Ron’s lawyer explains to him that he can’t sign legal documents for Kath in relation to the trust by using the Enduring Power of Attorney. She also explains to Ron that the Trust Deed sets out how Kath can be removed as trustee, but even if Kath is removed as trustee, no-one can sign the documents necessary to transfer the farm to the new owner. It will be necessary to apply to the High Court for a vesting order to enable the sale to proceed. This is going to cost thousands of dollars and will place Ron under additional financial and emotional stress. Ron’s lawyer advises him that a new Trusts Act is likely to be passed within the next year or so making it easier to remove an incapable trustee from the title to the trust’s land without going to the expense of a High Court application. However, the timing of the new Act is uncertain and Ron doesn’t want to wait that long.
Importance of a regular review of the trust’s affairs
Trustees should be meeting on a regular basis and reviewing the state of the trust’s affairs. This is necessary for trustees to properly discharge their duties. As part of that regular review, trustees should consider whether it is time for any of the trustees to retire. By retiring or removing any trustees before it is too late, the unfortunate situation in which Ron found himself can be avoided.
Please email me at [email protected] with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.
Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.
