Changing Trustees of a Family Trust: What Is Involved?

Changing the trustees of a family trust can appear straightforward. Sometimes it is. In other cases, particularly where the trust owns mortgaged property or has bank lending, the process can involve several additional steps.

The first question is usually why the change is being made. A trustee may wish to retire, may no longer be able to act, or may need to be removed. The family may also want to appoint a new trustee who is better placed to manage the trust going forward.

Whatever the reason, the change needs to be completed properly. It is not enough for the trustees simply to agree among themselves that one person will step down and another will take their place. The trust deed must be checked, the correct appointment process followed, and the trust’s assets and records updated.

When a trustee change is relatively straightforward

A trustee change will usually be simpler where:

  • the trust deed clearly permits the proposed change;

  • the person with the power to appoint and remove trustees is available to act;

  • the trust owns no mortgaged property;

  • there is no bank lending or security to update;

  • the trust records are complete; and

  • all relevant parties are available to sign.

In that situation, the change may be completed through a deed of retirement and appointment, together with trustee resolutions and any supporting documents required for the particular trust.

If the trust owns land, the registered ownership of the property will also need to be updated through Landonline. This is a separate legal step, even where there is no mortgage.

What happens when the trust has a mortgage?

The process is usually more involved where trust property is subject to a mortgage.

A bank will generally need to approve the trustee change before the outgoing trustee can be released and the new trustee formally takes responsibility for the borrowing arrangements.

The bank may need to:

  • review the proposed trustee change;

  • complete identity and AML checks;

  • assess the incoming trustee;

  • update the trust’s account mandate;

  • prepare new loan, guarantee or mortgage documents; and

  • arrange for those documents to be signed.

This means the legal documents cannot always be completed in a single appointment. The trustee change documents may need to be prepared first and provided to the bank for approval. Once the bank has completed its review, further lending or security documents may then need to be signed.

The bank’s process can add several weeks, depending on the nature of the lending, the availability of the trustees, and how quickly the bank completes its internal requirements.

It is therefore important to identify any mortgage or bank lending at the beginning. This allows the bank process to start early and reduces the risk of avoidable delays.

Why does the process involve more work than it used to?

People who have had family trusts for many years are sometimes surprised by the amount of information now required.

Trust administration has become more regulated. Lawyers, banks, accountants and trustees may need to address:

  • identity verification and AML requirements;

  • trust IRD and tax information;

  • trustee resolutions and record-keeping;

  • Landonline requirements;

  • bank lending and security documents; and

  • the trustees’ duties under the Trusts Act 2019.

These requirements are not necessarily a sign that something is wrong with the trust. They reflect the need to ensure that the trust is being administered properly and that its legal ownership, banking arrangements and records are accurate.

A trustee change is also an opportunity to review the trust

A trustee change should not be treated as an isolated paperwork exercise.

Before preparing the documents, it is sensible to consider whether:

  • the trust deed is available and complete;

  • the correct person is exercising the power to appoint or remove trustees;

  • the current trustees remain suitable;

  • the proposed new trustee understands the role;

  • the trust’s assets are correctly recorded;

  • the trust’s bank, IRD and contact details are current;

  • previous trustee changes were completed properly;

  • trustee decisions have been recorded; and

  • the trust is still serving a useful purpose.

This review can identify problems before they become more difficult or expensive to resolve. For example, the trust may have incomplete records, an outdated trustee company, an unavailable appointor, or property that was never correctly transferred following an earlier trustee change.

Does the trust still need to exist?

The cost and administration involved in changing trustees sometimes leads families to question whether the trust is still worthwhile.

That is a reasonable question, but the answer depends on the trust’s purpose, its assets, the circumstances of the beneficiaries, and the reasons it was established.

A trust may still provide important benefits, including asset protection, succession planning, management of family property, or protection for vulnerable beneficiaries. In other cases, the original reasons for the trust may no longer apply.

Before deciding to retain or wind up a trust, the trustees should obtain advice on the legal, tax, relationship property and succession consequences.

How long does a trustee change take?

The timeframe depends on the trust and its assets.

A straightforward change with complete records and no bank lending may be completed relatively quickly.

A change involving mortgaged property will usually take longer because the bank must complete its own review and prepare updated documents. Delays can also arise where the trust deed is missing, the appointor is unavailable, a trustee has lost capacity, or earlier changes were not properly documented.

The best way to keep the process moving is to identify these issues at the outset.

How we can help

We assist with trustee retirements, appointments and removals, including changes involving trust-owned property and bank lending.

As part of the process, we can:

  • review the trust deed and confirm who has authority to make the change;

  • prepare the necessary deeds and trustee resolutions;

  • liaise with the bank where mortgagee consent is required;

  • arrange the Landonline transfer of trust property;

  • identify missing or incomplete trust records; and

  • advise whether the wider trust structure should also be reviewed.

If you are considering changing a trustee, contact us with a copy of the trust deed and brief details of the trust’s assets. We can then advise what steps are required, whether bank consent will be needed, and the likely scope of the work.

Posted 3 days ago