The role of trustee implicitly involves decision making – taking multiple sources of information into account, making a considered decision, understanding the implications of that decision, and being held accountable for it.
A trust deed will often require unanimous decision making. Where there are concerns that one trustee is or is becoming mentally incapable, it can become a significant hurdle for the other trustees.
The early symptoms of dementia can be easily missed in personal as well as professional relationships, and although dementia can occur at any age, it becomes more common later in life. A common case is the family trust with one or both parents as trustees together with one or more of their children, and one of the elderly parents begins to show signs of dementia.
This poses a problem for trustees who have a co-trustee who has lost capacity. Some trust deeds allow the settlor to appoint and remove trustees, and s 43 of the Trustee Act can be used to replace a trustee where this power is lacking. However, some co-trustees will need to apply to the Court under s 51 of the Act where the removal and replacement of the trustee becomes inexpedient, difficult or impracticable.
Even given the assistance of the court, the process is difficult. A trustee who lacks mental capacity cannot sign documentation to transfer the property held by the trust to the new and continuing trustees.
Where dementia is diagnosed early, legal documents can be put in place. This will generally include an Enduring Power of Attorney (EPOA) for Property. An EPOA appoints someone to make decisions about your property and your finances if you are no longer able to. However, the practical difficulty from a trustee perspective is that there is no symmetry between the Protection of Personal and Property Rights Act 1988, the Trustee Act 1956 and the Land Information New Zealand (LINZ) rules regarding who can authorise the transfer of property.
An attorney appointed under an EPOA cannot sign trust documentation on behalf of the trustee, as the attorney is only authorised to act in relation to the person’s personal property, not the property owned by the person as a trustee. Importantly Land On Line does not permit an attorney to sign land transfer documents of behalf of a trustee who has lost mental capacity.
The only way to remedy the situation is to apply to the High Court under s 52 of the Trustee Act to vest the trust property concerned in the new and continuing trustees. This is an expensive and sometimes lengthy exercise, particularly where the trust does not earn income and its only asset is a family home.
A proactive approach for trustees is to be aware and alert to signs of the onset of dementia. These can include advanced age, dependency, failing memory, changes to personality, lack of decisiveness, departure from previous arrangements, as well as physical, mental and emotional instability.
Where signs are recognised, it is important to act quickly to avoid facing greater problems down the track.