Why trustees change
A change of trustee is a normal event in the life of a long-running trust. An individual trustee may retire or die. A professional trust company may be acquired, wind down its business in a jurisdiction or lose the confidence of the family. The family may move and want a trustee closer to home, or the trust may be migrated to a different governing law. A protector may decide that a fresh perspective is needed.
Whatever the reason, the legal mechanics are set by the trust deed and the governing law. The deed will say who holds the power to appoint and remove trustees, often the protector, sometimes the existing trustees or the settlor. The change is effected by a deed of retirement and appointment, or a deed of removal and a separate deed of appointment.
What the deed cannot do is update the records of every bank, custodian and payment provider holding trust assets. That practical work falls to the outgoing and incoming trustees, and it is where most of the friction occurs.
Legal title and the account
Because trustees hold legal title to trust assets, a change of trustees is a change in who owns them. Under many trust laws, a deed of appointment automatically vests trust property in the new trustees, but this does not apply to every type of asset, and it never automatically updates a third party's records.
For a bank or payment account, the account is held by the trustees in their capacity as trustees of the named trust. When trustees change, the provider must either amend the existing account to reflect the new trustees or close it and open a new one. Which it does depends on the provider's systems and policies. Either way, the provider will treat the incoming trustee much as it would a new client, because a new party now has authority over the account.
The documents a provider will need
Expect a provider to ask for the following when trustees change:
- The executed deed of retirement and appointment, or deeds of removal and appointment, certified as true copies.
- Evidence that the person exercising the power of appointment held that power, for example the protector's own appointment document if it is not already on file.
- Full onboarding documents for the incoming trustee: for an individual, identity and address documents; for a company, incorporation documents, register of directors, ownership details and identification of controllers.
- A resolution of the incoming trustee approving the account and naming authorised signatories.
- Identification of each new signatory.
- Confirmation of whether any other party has changed, such as the protector, or whether beneficiaries have been added or excluded at the same time.
Where the trust is also moving to a new governing law, the deed effecting that change and any revised trust deed will be needed too.
KYC updates beyond the trustee
A change of trustee is often a natural moment for a provider to refresh its whole file on the trust. The provider may ask for updated identification of the settlor, protector and known beneficiaries, a fresh source of wealth summary and a confirmation of the expected activity on the account.
This can feel burdensome to the incoming trustee, who may not yet have built a relationship with the family. But the incoming trustee will need most of this information for its own onboarding of the trust in any case. Professional trustees have their own regulatory duties to identify the parties to the trusts they administer. Coordinating the provider's requests with the incoming trustee's own take-on process avoids asking the family for the same documents twice.
Under Canadian rules, providers must identify trustees, the settlor, known beneficiaries and any protector, and beneficiaries of discretionary trusts when they are named or receive a distribution. Any new party introduced at the time of the change will need to be identified.
The gap between deed and bank
The most awkward period is between the effective date of the deed and the date the provider has finished processing the change. Legally, the old trustee has no further authority. Practically, the provider's mandate still names the old trustee's signatories, and it may not yet have approved the new ones.
During this gap, providers commonly restrict the account. They will not act on instructions from the outgoing trustee once they know it has retired, and they cannot yet act on instructions from the incoming trustee. Incoming funds will usually still be credited. Outgoing payments may be held.
The way to keep the gap short is to prepare in advance. If the provider receives the incoming trustee's onboarding documents before the deed is signed, it can complete its review and be ready to switch the mandate as soon as it receives the executed deed. Some providers will accept draft documents for review, with the executed versions to follow.
Pending and scheduled payments
Any payments already in progress need attention. Payments approved by the outgoing trustee's signatories but not yet executed may be cancelled when the provider learns of the change. Scheduled payments, such as regular distributions or standing payments for property costs, may also be suspended.
The outgoing and incoming trustees should agree a list of all known payment obligations for the weeks around the transition, and decide who will instruct each one. Ideally, urgent payments are made by the outgoing trustee before the effective date, and nothing else is scheduled until the incoming trustee's signatories are active. Any scheduled payments that need to continue should be re-approved by the new signatories once access is granted.
Beneficiaries who rely on regular distributions should be told in advance that there may be a short interruption, and why.
Platform access and user changes
On a client platform, a change of trustee means a change of users. The outgoing trustee's users should have their access removed as soon as the change takes effect. The incoming trustee's users must be set up with the correct roles, limits and approval rights reflecting the new signing policy.
This is a good moment to review the whole permission set. The incoming trustee may operate a different signing structure, for example requiring two approvers for all payments where the previous trustee required one below a threshold. Payee lists built up by the old trustee should be reviewed, and any payees the incoming trustee cannot verify should be removed or re-verified.
The platform's audit trail will show the date each user was removed and added, which provides useful evidence of when authority passed from one trustee to the other.
Handover of records
The outgoing trustee should hand over a complete set of trust records: the deed and all supplemental documents, the letter of wishes, minutes and resolutions, accounts, tax filings and correspondence. For banking purposes, the most useful items are recent statements for every account, a list of regular payments and their purpose, a list of verified payees with their bank details, and the provider contacts for each account.
The incoming trustee should reconcile balances on the effective date against the outgoing trustee's records. Any discrepancies are much easier to resolve while both firms are still engaged than months later.
Complications that come up
Most changes of trustee are orderly. A few are not, and the problems tend to follow recognisable patterns.
A contested removal. If a protector removes a trustee against its will, the outgoing trustee may dispute whether the power was validly exercised. A provider faced with competing claims to authority will usually freeze outgoing payments until the position is clear, sometimes until a court decides. Incoming trustees should be prepared for this and should have the trust's lawyers confirm the validity of the appointment in writing.
A trustee that has ceased to exist. Where a corporate trustee has been struck off or has gone into liquidation, the usual mechanics may not work, and the appointment of a replacement may require a court order or reliance on a specific statutory provision. Providers will want to see the legal basis for the new appointment.
The death of a sole individual trustee. Depending on the governing law, trust property may pass temporarily to the deceased trustee's personal representatives until a new trustee is appointed. Providers will need the death certificate, the grant of representation where relevant and the deed of appointment of the replacement.
Assets in several countries. Real estate, shares in local companies and accounts in different jurisdictions may each need a separate transfer process. Bank and payment accounts are often among the simpler items, provided the documents are in order.
A change of trustee and a change of family circumstances at once. Combining a trustee change with the addition of new beneficiaries, a change of protector and a migration of governing law in a single exercise multiplies the documents each provider must review. Sequencing the changes, where the lawyers agree it is possible, can make each step simpler.
A step-by-step handover plan
- Agree the effective date of the change, avoiding dates close to known large payments.
- Tell each provider in writing that a change is planned, and ask what documents it needs.
- Send the incoming trustee's onboarding documents to each provider for early review.
- Agree which payments the outgoing trustee will make before the effective date.
- Sign the deed of retirement and appointment, and send certified copies to each provider promptly.
- Remove the outgoing trustee's platform users and set up the incoming trustee's users.
- Re-approve any scheduled payments that should continue.
- Reconcile balances as at the effective date.
- Update the structure chart and the trust's records of providers.
General information only
This article is general information about the practical effects of a change of trustees. It is not legal advice, and the deed and governing law determine how and when a change takes effect. Trustees should take advice from the trust's lawyers before signing any deed of appointment or removal.
CCYFX works with outgoing and incoming trustees to update mandates and platform users when a trust changes hands. See our onboarding page for what we typically ask for.
