This article provides an introduction to the legal framework for removing a trustee, including the various grounds and procedures for removing a trustee. It is intended for people who have already established a trust or are considering establishing a trust.
Review the trust deed
First, read the trust deed. The trust deed may:
- include an express power for the beneficiaries of the trust to remove the trustee under certain circumstances and detail the procedures to be followed in exercising that power;
- nominate an appointor, being a person who is empowered to remove the trustee and appoint a new trustee, and detail the procedures to be followed by the appointor in exercising that power.
Power of the court to appoint a trustee
Courts are granted specific powers by operation of law to remove trustees by law. Each Australian State and Territory has a Trustee Act which outlines when a beneficiary can approach the court to appoint a trustee in substitution for or in addition to nay existing trustee (or if there is no trustee). In most States, these laws give the court the power to intervene when it is difficult or impracticable to do so without the assistance of the court.
The court may, amongst other things, consider:
- the interests of the beneficiaries and protecting those interests;
- whether or not the trustee has failed to perform their duties or engaged in misconduct.
This means that a trustee may be removed even though there has been no wrongdoing on the part of the trustee or in circumstances where removal is necessary to eliminate a conflict between them and another trustee or a beneficiary.
What you need to prove
If you want a court to remove a trustee then generally you will need to prove one of three things:
- that removing the trustee is necessary in order to secure the trust assets and protect the beneficiaries;
- the current trustee is not fulfilling its obligations as outlined in the trust deed;
- the trustee is exercising their power in a manner which is clearly prejudicial to the beneficiaries of the trust.
Most common reasons for seeking removal of a trustee
There are many reasons why a beneficiary may approach the court to have a trustee removed. The most common of these reasons are:
- the trustee is not abiding by the terms of the trust deed;
- the trustee is failing to prudently invest trust assets;
- the trustee is using the trust for its own unauthorised gain in breach of its fiduciary duties;
- the trustee is hostile toward the beneficiaries;
- there is good cause for removing a trustee and this can be demonstrated to the court.
Conclusion
To conclude, read the trust deed to understand who is empowered to remove a trustee and in what circumstances. In the absence of an express power in the trust deed, removing a trustee can be extremely difficult and may result in expensive litigation.
Speak to a specialist trusts lawyer at LegalVision to review your trust deed and discuss your options.