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June 2010

Family Trusts

Issues surrounding removal of Trustees

In recent years, with the phenomenal growth in the creation of Trusts to hold family assets there has developed an increasing tension between the views of the people who have put their assets into trust as to how the Trust should be administered and how the beneficiaries should be treated.

These tensions are now often played out in the context of litigation between those who administer the Trusts (Trustees) and those who stand to receive benefits from the Trust (beneficiaries).

These tensions can sometimes lead to beneficiaries of Trusts seeking to have Trustees removed by the Court. In the past, there has been a reluctance to remove Trustees, but recent cases indicate the Court is now more willing to be actively involved in the administration of Trusts.

In the context of an Application to the High Court, the principal methods of removing a Trustee are by use of the statutory powers in the Trustee Act 1956, or use of the High Court’s inherent jurisdiction to ensure the proper administration of Trusts.

Examples of when the Court will, in appropriate circumstances, remove a Trustee using the provisions of the Trustee Act (or its inherent jurisdiction) are:

  • where the Trustee has misconducted him or herself in the administration of the Trust:
  • is convicted of a crime involving dishonesty; or
  • has been declared bankrupt.

It is not possible here to list all the potential circumstances where the Court may intervene in the administration of the Trust and remove a Trustee. However, the Court’s powers are very wide, and each factual scenario has to be considered. The over-riding considerations relate to expediency and proper management of the Trust in question.

Trustees and beneficiaries alike need to be aware of their respective rights and obligations and seek legal advice.