What to do when a Trustee loses capacity: A guide for Family Trusts

A Trustee of my Family Trust has lost capacity – what do I do?

Trustees are the people who own the trust assets and manage those assets for the benefit of the beneficiaries. So, when a trustee can no longer act as a trustee due to the effects of dementia or other mental incapacity, the trustee must be removed. But how do you go about this?

How can Trustees be removed?

Most modern trust deeds include the power to appoint and remove trustees. These powers can be held by an appointer, protector, or the trustees. Some deeds include the power to appoint trustees but not the power to remove them.

What if the Trust Deed doesn’t specify removal powers?

If the trust deed is silent on removing an incapacitated trustee, then the Trusts Act 2019 (the Act) provisions are followed. Under the Act, the remaining trustees are permitted to remove the incapacitated trustee. However, if there are no remaining trustees, or they are unwilling to act, then the incapacitated trustee may be removed by:

• A person holding an enduring power of attorney over the property of the incapacitated trustee, or;
• A property manager appointed under the Protection of Personal and Property Rights Act 1988 to act as manager of the trustee’s property, or;
• A liquidator of a corporate trustee that is in liquidation.

Determining mental incapacity

Mental incapacity is not defined in the Act, and only a qualified medical practitioner can make this evaluation. A medical certificate confirming mental incapacity will be required to give effect to the removal.

Notifying the incapacitated Trustee

Once a decision has been made to remove the incapacitated trustee, the trustees must give notice of the decision to the incapacitated trustee. There is no prescribed form for this, and we recommend that compassion and consideration is taken when notifying the trustee.

Expert advice for your Family Trust

If you suspect your trust may have an incapacitated trustee, or would like to review your trust deed to account for the above scenario, please contact our Trust Law Team.