Changing trustees

“Who is Jim Brown?” or more commonly, “What is Jane Smith still doing on our title – she retired years ago?”.

These are the types of concerned questions we sometimes get when dealing with the sale of a property (or other assets) owned by a family trust. It is a common scenario:

A family trust is set up in the 1990’s or early 2000’s with a trusted family lawyer acting as an independent trustee. Sometime later, the trusted lawyer retired from practice and also “retired” as trustee. Unfortunately, the change of trustee was not registered on the title to the property owned by the trust and when the other trustees want to sell years later, this needs to be remedied. This is because with a trust, ownership of assets should always be registered in the names of the trustees not the trust itself.

In the best-case scenario, the trusted lawyer might still be practicing and able to sign the necessary documents. However, in some cases the trusted lawyer is dead or incapacitated.

This can take time and incur significant expense correcting the title.

So, remember when changing trustees to always ensure that the ownership of any assets “owned” by the trust is also updated – most importantly realestate, but also shares in companies, insurance policies, or bank accounts.

Other important things to consider when changing trustees include:

• Check the trust deed carefully. Is there a minimum number of trustees? Can the remaining trustees (often Mum and Dad in typical New Zealand family trust) actually take any action without an independent trustee? Many trust deeds do not allow any distributions from the trust if all remaining trustees are beneficiaries. Also, the Trusts Act 2019 does not allow trustees to act for their own benefit unless the default duty has been specifically amended by the Trust Deed.
• Ensure required formalities are followed – does the trust require replacement of trustees by deed? Does if require a certain notice period? Particularly if the retirement was prior to the Trusts Act 2019, retirement by deed may be compulsory.
• Have all relevant parties been consulted or advised of the change of Trustees? This could include:
  1. A bank or mortgagee. Guarantees may need to be updated or released and loans redocumented.
  2. Local Councils. Often rates notices are still being sent to the old trustees.
  3. Beneficiaries who are entitled to information regarding trustees under the new Trusts Act.
  4. Inland Revenue Department.
• Have all liabilities of the retiring trustee been released?

This may all seem like a lot of work and there is a temptation to cut corners. However, it is a lot cheaper and easier to do it at the time of the change of trustees than try to do it years later.

Please contact us contact us if you have any questions regarding changing trustees or your trust generally.