So your co-trustee’s memory is failing, prior decisiveness is gone and there is a variety of opinion within the family group as to how to handle the possible warning signs of mental incapacity. This is a not uncommon scenario, especially when a family trust owns only the family home.
It is much easier to avoid the upset and do nothing, but at what cost?
The recent case of Cade v Cade  NZHC 1624 was a typical example. Mr & Mrs Cade set up their family trust in 1999. The trust owned the family home, which was registered in Mr and Mrs Cade’s names jointly, as the only two trustees. Unfortunately Mr Cade developed progressive Alzheimer’s dementia. Because he no longer had the mental capacity to carry out his obligations as trustee, in April 2016 he was removed as a trustee and his two sons were appointed as the replacement trustees. Mrs Cade continued as a trustee
However, at that stage Mr Cade could no longer validly sign the documents required to change the property into the names of the new trustees and Mrs Cade. Therefore the trustees needed to apply to the High Court for a vesting order under Trustee Act 1956 to register the property in the names of the new trustees and Mrs Cade. That application was successful.
The facts and the conclusion may be simple – nevertheless, co‑trustees need to be aware of what is involved in this process.
Despite the fact that Mr Cade had been discharged as a trustee because of his incapacity the Judge still had to be satisfied on this point. Therefore the solicitors needed to file the doctors’ medical evidence in an affidavit to support this conclusion.
Then, because Mr Cade was incapacitated the solicitors also had to ask the court to dispense with its usual requirement for Mr Cade to have a litigation guardian and also ask the court for permission to present all the evidence by way of affidavit and dealt with on the papers, rather than calling witnesses. These requests had to be included in the application the solicitors filed at the High Court.The court granted these preliminary orders and also the order “vesting” the property pursuant to section 52 Trustee Act 1956.
This case highlights that what trustees can do relatively simply whilst all trustees have capacity, changes instantly once there is a diagnosis of incapacity for one of the trustees.
The time and effort involved when that happens means that the costs are significantly higher relative to the costs when trustees retire whilst they still have capacity to sign all the documentation.
Furthermore even if a trust deed allows a decision to be made by a majority of trustees, all the trustees have the capacity to make the decision. If there is then a dissenting trustee it is a true dissent. If co-trustees make a majority decision by ignoring the trustee whose capacity is diminishing they would be at fault - the resulting trustee decision would be compromised and could be challenged later.
If you think you have such a problem looming with a co-trustee, we recommend that you seek legal advice at the earliest opportunity. It is far more cost effective to be proactive rather than reactive in this area.
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