How to Remove a Trustee
A testator can leave instructions in his or her will to create a testamentary trust to protect the interests of vulnerable beneficiaries. A trustee oversees the testamentary trust and ensures that the assets in the trust are effectively managed and the beneficiaries receive appropriate distribution according to the wishes of the testator. On occasion, it is necessary to arrange the removal of a trustee from their position to protect the interests of the beneficiaries. This article discusses how to remove a trustee in Australia.
Role Of The Trustee
A trustee’s role is to administer a trust and distribute assets or funds according to the wishes outlined in a trust document or deed. Trustees have a fiduciary duty and authority to manage the assets in the trust and handle day-to-day matters related to the trust. A “fiduciary” duty is one of utmost loyalty and requires that the trustee must not act in their own interests or for their own benefit.
Importance Of The Trust Deed
A trust deed outlines the rules that pertain to the establishment and operation of the trust. This legal document will dictate the objectives of the trust, specify who is to benefit from the trust, and in what manner they will benefit. A trust deed must be prepared by a competent person (typically a solicitor), legally executed according to the state or territory law, and updated when required to reflect changing circumstances.
A trust deed will appoint a trustee to oversee the trust. Some trust deeds specify conduct that would disqualify a trustee and provide for a procedure to remove the trustee. Most trust deeds will nominate an appointer who has the power to remove a trustee in specific circumstances. In effect, the appointer is more powerful even than the trustee, because the appointer has the power to remove and appoint trustees.
When a trust deed is silent on the issue of removing a trustee, it can be difficult and expensive to arrange to remove a trustee. A beneficiary should consult an experienced solicitor before taking any action, especially when the trust deed does not outline a procedure to remove a trustee.
A Supreme Court does have the power to remove a trustee even when there is no provision in the trust deed. This is because the court has the legal authority to protect the interests and welfare of the beneficiaries of any trust. The court, therefore, has the jurisdiction to determine whether the removal of a particular trustee is necessary to ensure the proper administration of a particular trust.
How To Remove Trustee
Legislation in each state and territory outlines when a beneficiary can ask the court to remove a trustee. For example, in New South Wales, the Trustee Act 1925 permits the Supreme Court of NSW to remove a trustee and appoint a new person when necessary. A beneficiary of a trust will only be successful in a petition for the removal of a trustee if certain conditions exist and if the terms of the trust deed allow for the removal. Specifically, the court will make a decision based on whether the trustee has acted appropriately in their management of the trust and whether it is in the best interests of the assets or beneficiaries to remove the trustee.
It is important to note, however, that the court can remove a trustee even when there is no allegation of misconduct or impropriety. For instance, the court may determine that it is necessary to remove a trustee even when they have acted appropriately, because of a conflict between a trustee and beneficiary.
Reasons To Remove Trustee
A court will not remove a trustee without sufficient cause. Each case is decided on the specific factors at play in the case, but typically, a beneficiary must prove one of the following:
- The removal is necessary to protect the assets or the interests of the beneficiaries of the trust;
- The trustee has acted contrary to the instructions in the trust deed; or
- The trustee has not exercised their power in the interests of the beneficiaries.
In practice, a trustee is usually only removed from their position for failing to invest trust assets prudently, for failing to abide by the terms of the trust deed, or for breaching their fiduciary duties. On occasion, it may be necessary to remove a trustee when a beneficiary is unable to contact the trustee for an extended period of time, or the trustee becomes bankrupt. In addition, a trustee may be removed if he or she becomes constitutionally unfit to discharge the duties of the role. A beneficiary may notice that a trustee is showing signs of loss of capacity (for instance, showing signs of confusion, or seems to fundamentally misunderstand their responsibilities). In this case, it is best to consult a legal professional to decide the next step.
Sometimes a trustee is removed even if they are otherwise managing the trust appropriately, simply because they are clearly hostile towards the beneficiaries of the trust. Such hostility is contrary to the objectives of the trust. Fundamentally, there must be good, demonstrable cause to remove a trustee.
Before you attempt to remove a trustee, you should revisit the trust deed and ask your solicitor for advice. Your solicitor can look over the trust deed and advise you appropriately, given your particular circumstances. The contested wills team at Armstrong Legal can help you understand the circumstances under which you can remove a trustee in Australia. Please call or contact the team right away on 1300 038 223.