Gill Steel, LawSkills Consultancy & Training
A trustee may wish to retire or may have died and to give an appropriate receipt for capital monies the surviving trustee needs a replacement. How do you go about it?
Can the Settlor appoint?
The power of appointing new or additional trustees is granted to the settlor. If he is still alive ask him to exercise his power.
If he lacks capacity to manage and administer his property & affairs the Court of Protection may exercise the power & may also make any consequential vesting orders – s.54 Trustee Act 1925 as amended by the Mental Health Act 1983 and the Mental Capacity Act 2005.
What about the existing trustees?
If the settlor has died or there is no express provision in the settlement deed providing that the statutory power of appointing new trustees lies with someone else, the statutory power of appointing new trustees will rest with the current trustees of the trust. If they have all died, then the personal representatives of the last surviving trustee are enabled to appoint new trustees.
Does the statutory power apply?
This is set out in s.36(1) of the Trustee Act 1925, which states that
“Where a trustee, either original or substituted, and whether appointed by Court or otherwise:
(a) is dead;
(b) remains out of the UK for more than 12 months;
(c) wishes to be discharged;
(d) refuses to act;
(e) is unfit to act;
(f) is incapable of acting; or
(g) is an infant
then, subject to the restrictions imposed by this Act on the number of trustees,
(a) the person or persons nominated for the purpose of appointing new trustees by the instrument, if any, creating the trust; or
(b) if there is no such person able and willing to act, then the surviving or continuing trustees or trustee for the time being or the PRs of the last surviving or continuing trustee
may, by writing, appoint one or more persons (whether or not being the persons exercising the power) to be a trustee or trustees in the place of the trustee so deceased, remaining out of the UK, desiring to be discharged, refusing or being unfit or being incapable, or being an infant, as aforesaid.”
In this context ‘trustee’ does not include a person purporting to act as trustee who has not been validly appointed and so is a trustee de son tort. Therefore, an invalid appointment which remains undetected for some time can cause havoc - Jasmine Trustees Ltd v Wells & Hind [2007] EWHC 38.
What happens to the assets?
Under s.40 of the Trustee Act 1925 certain types of property vest automatically in the new trustees as a result of their appointment, e.g. freehold land and bank accounts. Unfortunately, this automatic vesting does not apply to stocks and shares, and thus when a new trustee is appointed it will be necessary to ensure that the trust assets are properly vested in the current body of trustees. Where a trustee is unwilling to co-operate in his removal it is usually necessary to apply to court for a vesting order under s.40 and at the same time for the appointment of a new trustee.
Forced change?
Under s.41 of the Trustee Act 1925 a court may ‘whenever it is expedient to appoint a new trustee or new trustees, and it is found inexpedient, difficult or impracticable to do so without the assistance of the court’ make an order appointing a new trustee or new trustees either in substitution for or in addition to any existing trustees, or where there is no existing trustee.
Section 41(1) specifically envisages making an order where a trustee has become incapable by reason of mental disorder within the meaning of the Mental Health Act 1983 of exercising his functions as trustee, or is bankrupt, or is a corporation which is in liquidation or has been dissolved.
Can the beneficiaries do it?
Since 1 January 1997, by s.20(1) of TLATA 1996 the beneficiaries of a trust may give a written direction appointing the person(s) specified in the direction.
Beneficiaries can only so direct if:
1. a trustee lacks capacity (within the meaning of the Mental Capacity Act 2005) to exercise his functions as a trustee
2. there is no person who is both entitled and willing and able to appoint a trustee under s.36(1) of the Trustee Act 1925, and
3. the beneficiaries under the trust are of full age and capacity and (taken together) are absolutely entitled to the property the subject of the trust.
In this situation the beneficiaries’ written direction needs to be given to the trustee’s:
1. Deputy appointed for the trustee by the Court of Protection; or
2. Attorney acting for him under the authority of an Enduring Power of Attorney or Lasting Power of Attorney registered under the Mental Capacity Act 2005; or
3. Person authorised for the purpose by the Court of Protection.
There is no express provision concerning the vesting of assets under s.20 TLATA 1996 so reliance has to be made on s.37(1)(d) Trustee Act 1925. If the appointment under s.20 is actually made by Deed then it will operate under s.40(1) Trustee Act 1925 and assets permitted to be vested under that section will be vested in the new trustee. Any assets which cannot be vested under s.40(3) will mean a vesting order is required.
Practice points
1. Check the trust instrument to see if anyone is nominated to choose who should be a trustee or if any statutory provisions are excluded, such as ss.19 or 20 TLATA 1996; or
2. See if s.36 Trustee Act 1925 provides the options; or
3. See if ss.19 or 20 TLATA 1996 applies; or
4. Decide whether an application to court is required under s.41 of the Trustee Act 1925.
5. Any appointment of a new trustee should be in writing and there are any number of precedents available to meet the common situations.