29/06/2016

A common question we are asked is whether trustee minutes or resolutions are enough to change the trustee of a trust?

The answer to that question comes back to what the trust deed says.  Depending on how the trust deed is drafted, the deed will usually set out the who, what, when and how of changing a trustee.

Here are four key questions that should be asked when looking at the change of trustee power in a trust deed.

1. Who has the power to appoint or remove the trustee?

The trustee commonly has the power to appoint or remove a trustee. However, it should not always be presumed that the power to appoint or remove lies with trustee.  This power may also be exercised by a third party or the power may only be exercised with the consent or agreement of a third party.  A ‘third party’ could be a number of people, including the founder of a SMSF, principal employer of an SMSF, members of a SMSF, a legal personal representative and/or the appointor or taker-in-default of a discretionary trust.

2. What does the trustee need to do to resign or retire?

A deed will normally contain a list of scenarios where a trustee will cease to act as a trustee and the procedure on what the trustee needs to do to resign or retire.  It is common for a trustee to resign by notice in writing but this notice may need to be given to a third party.  This resignation notice alone may not be effective enough to resign and further steps such as formally executing a deed may be required.

There may also be several steps required in the process of resigning, such as the trustee being required to hold a meeting prior to executing any documents.  In addition, a trustee may need to give their notice to resign a number of days in advance before their actual retirement.

3. When does the appointment need to happen?

A provision in the deed may specify a time limit to appoint a new trustee.  This could be within a certain number of days of the previous trustee’s resignation.

4. How does the trustee appoint a new or additional trustee?

The power to appoint a new trustee will usually state how the trustee should be appointed.  The common methods of appointment we have seen in various trust deeds are “by instrument in writing” and “by deed”.  Sometimes there may also be additional requirements such as holding a meeting to appoint a new trustee or having to amend the rules of the trust immediately after the change of trustee.

So how do all these questions help answer the original question on whether trustee minutes or resolutions are enough to change the trustee of a trust?

Trustee minutes or resolutions may or may not meet the rules contained in the trust deed.  It is highly likely the trust deed will require other documents in addition to trustee minutes and resolutions that need to be prepared.

Even if trustee minutes or resolutions are enough to change a trustee it is common for third parties such as banks (when changing the name of the trust’s bank account) and local State titles offices (when transferring real property to a new trustee) to require a formal change of trustee deed.

If the relevant documents are not prepared at the time of the change of trustee, this could cause delays and additional fees when trying to transact or make changes with third parties.

Additionally, if a change in trustee is not validly effected in accordance with the rules of the trust, this could cause further problems in the future for the entity or persons acting as ‘trustee’ by not being able to exercise any rights of the trustee or to be indemnified from any claims or liabilities when acting as trustee.  Trust deeds come in all shapes and sizes so it is important to never presume a trustee minute and resolution will be enough to change a trustee of a trust.  

If you require any assistance with legally reviewing a deed or changing the trustee and preparation of all relevant documents, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.