Who holds the power to add or remove trustees?

19 December, 2014 | Peter Smith

What happens to this power when I die?

Most people with a discretionary family trusts realise that a trustee’s role is to make decisions regarding the trust and generally to carry out the administration of the trust.  This includes an “unfettered discretion” (trustees do not have to disclose reasons for their decisions) as to the distribution of trust fund to beneficiaries.  Having the appropriate trustees in control of the trust (and the trust assets) is integral to the success of the trust.

But Who Selects The Trustees?

The settlor (generally the person(s) who set up the trust) will appoint the initial trustees when they set up the trust.  Most commonly the settlor will appoint themselves (husband & wife) as trustees along with an independent trustee (a non-beneficiary) or a corporate trustee.

The “Power To Hire And Fire” Trustees

The power of appointment and removal of trustees is usually held by the settlor or appointor of the trust and gives that person(s) the right to hire and fire trustees.  It is important to check your trust deed to see who holds the power of appointment and removal of trustees, and any limits that it may set out.   (Learn more about how to remove a trustee)

Why Is There A Power Of Appointment (and Removal) of Trustees?

The Power of Appointment is included in Trust Deeds to ensure that there are always sufficient trustees available to administer the property of the Trust in accordance with the terms of the Trust Deed.
A power of appointment can be used:

1. To remove a trustee if the settlor believes that they are not acting in accordance with the settlor’s wishes or intentions of setting up the Trust. The removal of such a trustee must be done in good faith and in the best interests of the beneficiaries;
2. To remove a trustee who is ill or no longer has mental capacity to carry out their responsibilities as a trustee of the;
3. To add trustees, such as adult children, or to appoint new trustees on the retirement of existing trustees.

Can I (Settlor) Pass on this Power of Appointment on Death?

If the person holding the power of appointment dies without determining the power of appointment, the Trustee Act 1956 sets out that executor/trustee of the settlor’s Will is automatically vested with the power of appointment. It is essential that consideration be given as to who is to have the power of appointment on the death of a settlor. It is common to include a clause in your Will stating who the power of appointment will vest in on your death.

To learn more about adding or removing a trustee, contact family trust lawyer, Peter Smith by phone on 09 837 6882 or email peter.smith@smithpartners.co.nz