Trusts are a commonly used business structure in Australia. Unsurprisingly, many people are unsure whether they can remove the trustee of a trust and how to do so. Below, we discuss under which circumstances you can remove a trustee as well revisiting the importance of the trust deed.
Can I Remove a Trustee?
As with most questions in law, the answer depends on the circumstances. Whether your situation allows for the trustee’s removal depends on your reasons for doing so and the terms of the trust deed.
Some trust deeds expressly permit the removal of a trustee. If so, the trust deed typically lists those actions that warrant removal of a trustee and the appropriate procedure to achieve this. Some deeds even nominate an appointor – this person has the specific power to remove a trustee. The deed will also outline how they must do this.
Before removing a trustee, consult the trust deed and discuss the matter with your lawyer. Explain to him or her why you wish to remove the trustee and provide them with a copy of the deed. They can advise you appropriately at the outset and potentially save you wasting your time and money.
How to Remove a Trustee
State and territory legislation details when a beneficiary may approach the court to request the removal of a trustee. For example, Section 6 of the Trustee Act 1925 (NSW) permits the court to appoint a new trustee in certain circumstances.
If a beneficiary requests the assistance of a court in a particular situation, the court will make their decision based on:
- Whether a trustee has either not performed their duties or acted inappropriately; and
- Protecting the interests of the trust’s beneficiaries.
Importantly, removal of a trustee is possible even when there is no suggestion of misconduct. Removal does not necessarily imply impropriety. For example, a court may act in cases of conflict between trustees or a trustee and beneficiary to protect the beneficiaries of the trust even though the trustee has not acted inappropriately.
Reasons to Remove a Trustee
Typically, a court will remove a trustee if a beneficiary or beneficiaries prove that:
- Removal is necessary to safeguard trust assets and protect the beneficiaries;
- The trustee has not fulfilled their duties as laid out in the trust deed; or
- The trustee is exercising their power prejudicially to the interests of the trust’s beneficiaries.
Like most legal matters, whether a court will remove a trustee will depend on the specifics of your situation.
So if you are considering removing a trustee, you must think carefully and ask yourself two questions:
- Could your reasons for wanting to remove the trustee and the surrounding circumstances demonstrate to the court that a trustee has either acted inappropriately or that their actions have harmed the interests of beneficiaries?
- Further, could you prove that removal of a trustee was necessary to protect the beneficiaries or that the trustee had acted either contrary to the deed or prejudicially to the interests of beneficiaries?
Your particular circumstances will determine the procedure you need to follow to remove a trustee. Always read the trust deed first. If your deed is silent on the subject of removing a trustee, you will need to speak with a lawyer before taking any further action. If you have any questions, get in touch with our business structuring experts on 1300 544 755.