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Transferring Trust Property to New and Continuing Trustees

Transferring Trust Property to the New and Continuing Trustees.

When a new trustee of a trust is appointed, or an existing trustee retires or is removed, the trust’s property must be transferred from the existing trustee(s) to the continuing and new trustee(s). In other words, the trust property must be divested from the old trustee and vested in the new trustee(s).

Nature of Trust

This is because a trust is not a legal entity like a company. A company has separate legal personality and can own property continuously despite changes to its directors. A trust, on the other hand, is merely descriptive of a legal relationship between property and its legal owners, who are the trustees. Ensuring the trust property is vested in the right people is, therefore, of utmost importance to the property administration of the trust.

Two Types of Property

The Trusts Act 2019 (Trusts Act), which came into force on 30 January 2021, contains clear rules regarding the transfer of trust property to new and continuing trustees. The Trusts Act distinguishes between two types of property:

  1. Property that, in order to be transferred, needs to be notified, registered, or recorded under the requirements of another Act.The two most obvious and common examples are land under the Land Transfer Act 2017 (Land Transfer Act) and shares under the Companies Act 1993 (Companies Act). Under both Acts, a transferor’s legal title to the relevant property is dependent on registration. In the case of the Land Transfer Act, title depends on the register maintained by the Registrar-General of Land. In the case of the Companies Act, title depends on the share register.
  2. Everything else.

Automatic Divesting and Vesting

If trust property falls into the “everything else” category, the legal transfer is essentially automatic. Section 116(2) of the Trusts Act provides that the execution of the document of appointment, removal, or discharge, for example a deed of appointment and removal (or a Court order):

  • divests the trust property from the persons who were the trustees immediately before the document was executed; and
  • vests the property in the persons who become and are the trustees as joint tenants without any conveyance, transfer, or assignment (but subject to any liabilities attaching to the property).

This divesting and vesting does not require any involvement or assistance from the trustee who has retired or been removed.

Conditional Divesting and Vesting

Divesting and vesting will not be automatic for property that needs to be notified, recorded, or registered under an Act. For such property, the divesting and vesting are subject to the requirements of the Act and do not take effect until those requirements are satisfied (per section 117(1)(a)). This would include the requirements of the Land Transfer Act and Companies Act, in the case of land and shares, respectively.

The only property that is vested in the continuing and new trustees is the legal right to call for the transfer of trust property (per section 117(1)(b)). That right derives from the document of appointment, removal, or discharge. It can be proved by the continuing and new trustees providing a copy of the document, together with a statutory declaration that the document was validly executed (per section 117(1)(c)).

Calling for the Transfer – The Old Law

Prior to the Trusts Act, calls to former trustees to transfer trust property to continuing and new trustees were sometimes refused or ignored. In such cases, the only way to compel the transfer of trust property was to obtain an order from the High Court.

This was not a good solution. As noted by the Law Commission in its 2013 Review of the Law of Trusts:

“A court order addresses these issues, but has its own problems due to cost, delays, and a perceived inaccessibility for lay trustees. It is also questionable whether it is appropriate to use the court’s time for what is essentially an administrative matter.”

While going to Court is still an option under the Trusts Act, we now have something better.

The New Law – Duty to Assist with Transfer

Retired, removed, new, and continuing trustees have a statutory duty to assist with the transfer of trust property. Per section 118(1) of the Trusts Act, they must do all things necessary to assist in any transfer and any required notification, registration, or recording of the divesting and vesting of the trust property.

This would include executing authority & instructions forms and land transfer tax statements required under the Land Transfer Act. It would also include executing any share transfer forms required under the Companies Act.

The duty changes the previous law in a good way. Old trustees can no longer ignore or refuse a call to transfer trust property and force a Court application. To do so would be a breach of the Trusts Act.

What if they Refuse?

If a former trustee fails or refuses to comply with the duty, the new and continuing trustees can complete any formal requirements for the divesting and vesting of trust property, on behalf of the former trustee. This is specifically provided by section 118(2) of the Trusts Act.

Having the power to execute the documents required to legally transfer trust property, particularly land and shares, negates the previous power of former trustees to delay or frustrate changes of trustees. Refusing to sign an authority & instruction form, for example, will not achieve anything under the Trust Acts (other than potentially breaching it).

Mortgaged Trust Property

If the trust property includes land that is subject to a mortgage, the mortgagee, which will most likely be a bank or other lender, will need to consent to the transfer of title to the new and continuing trustees. The mortgagee may only be willing to provide such consent if certain conditions are met, for example the execution of new loan or guarantee documentation by the new trustee(s).

Assisting with meeting the mortgagee’s requirements to provide consent to the transfer is part of a departing trustee’s duty under section 118 of the Trusts Act.

Good Faith Protection

The Trusts Act protects people who act in good faith when notifying, registering, or recording the transfer of trust property in reliance of certain documents (section 119). The documents include Court orders, documents of appointment and removal, statutory declarations regarding execution of such documents, and the formal requirements of legislation for the transfer of specific property.

Such people are not liable for any loss or deprivation that may result from the notification, registration, or recording.

Giving Documents to the Departing Trustee

Once all the requirements to divest and vest the trust property have been met, the continuing and new trustees must give the departing trustee a copy the documents that demonstrate the transfer (per section 120).

Contact Us

If you need assistance with removing a trustee or transferring trust property, or have another legal issue about trusts, contact our expert trust and estate lawyers.