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Estate Group update: What happens when Trustees are in conflict?

Nov 19, 2015

When Trustees are in conflict the Supreme Court has the power to remove a Trustee and appoint a new Trustee in substitution.

In considering the removal and appointment of a new Trustee and in selecting a replacement Trustee, the dominant consideration in the appointment (and removing) is the interests of the beneficiaries.

In addition, the Court will look at three main considerations when appointing a new/replacement Trustee:

  1. The wishes of person who created the Trust.
    • The wishes do not need to be expressly stated in the Trust deed. The wishes may be inferred from the terms of the Trust, or by the identity or description of the original Trustee.
  2. Who will promote the interests of the beneficiaries.
    • A Trustee should not be appointed with a view to promoting the interests of some beneficiaries in opposition either to the wishes of the settlor or the interests of the other beneficiaries.
    • The purpose of this is to avoid a conflict of interest. This is reflected in the Court’s (general) preference to not appoint a beneficiary or a relative of the beneficiary, as the new/replacement Trustee.
  3. Whether or not the appointment will promote or impede the execution of the Trust.

The Court will also consider the financial resources of the Trust and any relevant experience of a suggested Trustee.

In circumstances where there is real (not perceived) conflict, the Court will normally appoint an independent Trustee, such as a Trustee company or an experienced legal practitioner.

The Court will need to be satisfied that the new/replacement Trustee adequately represents all of the beneficiaries’ interests, and will carry out his/her or its duties fairly.

The Court may also impose safeguards as to the conduct and administration of the Trust by the new/replacement Trustee.

The Court may also order the exiting Trustee to provide information as to its conduct and management of the Trust.

The risk in these proceedings is that the Court may also make orders penalising the exiting Trustee (personally) for any conduct that is in breach of his/her or its duties.

The issue is always who will bear the costs of the proceeding. In some circumstances the costs will be borne by the Trust itself, in other circumstances the costs could be borne by the exiting Trustee, or the applicants seeking to appoint the new/replacement trustee. It depends upon how the parties have conducted themselves into the lead up to the proceeding and during the proceeding itself.

More information

If you are a Trustee and involved in a potential conflict involving a Trust, please contact a member of our Estate Group on 8600 8885 to discuss.

Note: This update is a guide only and is not intended to constitute legal advice.