How to retire as a trustee
The removal (and appointment) of trustees is most commonly dealt with in accordance with the terms of the trust deed or, where that does not assist, the Trustee Act 1956. However, in some circumstances the assistance of the Court will be required.
Accordingly, the first step is to check the trust deed. While it is true that a trustee cannot be compelled to remain a trustee, not all trust deeds allow a trustee to retire when they choose. Where the deed does provide for removal, it is important to follow the terms of the trust deed. Arrange for a deed of retirement to be prepared (or whatever document is required by the trust deed) and signed by all trustees.
The second step is to establish whether there will be any objection to the retirement. The retirement of a trustee can be expensive where the trust has property interests, all of which will have to be transferred from the retiring trustee to the new and continuing trustees. Co-trustees may object to the cost, or may object to a retirement because of concerns over liability. If agreement cannot be reached, under s 46 of the Trustee Act a trustee who wishes to retire can give notice of their intention to retire to their co-trustees, to the person with the power of appointment and removal of trustees, and pass the trust’s accounts to the Registrar of the High Court, or can ask the Court to appoint a new trustee. These may be necessary steps as it is important to note that a trustee remains personally liable until their retirement.
Where the deed does not permit retirement, section 43 of the Trustee Act can assist. This requires the preparation and execution of a deed of retirement of trustee. The deed will need to be signed by the retiring, continuing and new trustees. Note that where the document is a deed, the signatures of all trustees must be witnessed – this is very important. Take care to ensure that there is always a sufficient number of trustees – check the trust deed to confirm this.
While most cases involving removal of trustees are against the trustee being removed, there are often instances where the application is brought by a trustee who wishes to retire. This may be due to inaction by other trustees, deadlock of the trust due to conflict, or the absence of a co-trustee. Section 51 of the Trustee Act gives the Court the power to remove a trustee where it is also appointing a new trustee, and where it is “inexpedient, difficult or impracticable to do so without the assistance of the Court.”
Where a trustee is appointed or removed with the assistance of the Court it may be necessary to also apply for vesting orders to be made transferring any trust property to the new trustee. This might also be required where a trustee has retired but has not or will not complete the associated formalities.
Once a trustee has retired, ensure the following administration is attended to promptly:
- Check the Companies Office records show correct transfers of shares
- Check certificates of title show correct proprietors
- Update signing authorities with banks or other institutions
- The retiring trustee must advise Inland Revenue of their retirement
- Where the trust is GST-registered, the retiring trustee must advise the Commissioner of Inland Revenue in writing of their retirement. Note that a trustee will be liable for GST until the IRD has been notified in writing
- The retiring trustee should advice the trust’s beneficiaries, advisors, accountant, lawyer and any other related party.