14- Appointment, Retirement and Removal of Trustees

Core ideas-

• Trusts must always have functioning trustees

• Over time, trustees may need to be appointed, replaced, retired, or removed

Why this topic matters

• Without trustees, a trust cannot operate

• This topic explains how continuity of trust administration is legally guaranteed

Why trustee change is essential

Trustees may:

• Become ill or incapacitated

• Act dishonestly or incompetently

• Develop conflicts of interest

• Die or wish to retire

Sources of power to change trustees:

• Trust instrument

• Statute

• Court

Why trustee change is essential

• key ideas

• although simple in principle, these powers are technical in operation

Mini lecture 1

• key themes -

• Trusteeship is an office, not property

• Trustees cannot be forced to serve

• Trust law prioritises continuity + beneficiary protection

Appointment, Retirement and Removal (Outline)

• Appointment of First Trustees

• INTER VIVOS TRUSTS

• Self-declaration → settlor is trustee

• Transfer to trustees → recipients become trustees

Appointment, Retirement and Removal (Outline)

• Appointment of First Trustees

• TESTAMENTARY TRUSTS and problems

• Executors usually become trustees

• Problems arise if they:

  • Refuse appointment

  • Die before testator

Appointment, Retirement and Removal (Outline)

• Appointment of First Trustees

• TESTAMENTARY TRUSTS

• result..

Powers to appoint trustees may be needed even at the start

Appointment of New Trustees & Discharge

New trustees needed when:

1. Trustee dies or trust company incapacitated

2. Trustee retires or is removed

3. Trust needs additional trustees

Appointment of new trustees and discharge

• why minimum two trustees?

• reduces fraud risk

• required for overreaching land

Appointment of new trustees and discharge

• statutes

S14 TA 1925

S27 LPA 1925

Appointment of new trustees and discharge

• exception

• trust corporations may act alone

Retirement vs Removal

Retirement:

• voluntary

• usually conditional on replacement

Retirement vs Removal

Removal-

• involuntary

• for unfitness or incapacity

Retirement vs Removal

Why replacement required-

• protects beneficiaries

• prevents trust collapse

Retirement vs Removal

Adding trustees-

• improves expertise

• balances workload

• common in family/professional trusts

Powers in the Trust Instrument

Problems with relying on trust instrument:

• power-holder may die or become incapacitated

• powers may be badly drafted

Powers in the Trust Instrument

Problems with relying on trust instrument:

CASE

• Re Wheeler- poorly drafted powers fail

Powers in the Trust Instrument

Problems with relying on trust instrument:

• result

Statutory powers usually relied upon

Trustee Act 1925: ss.36 & 39

Core structure

Automatic discharge:

• only death

Trustee Act 1925: ss.36 & 39

Core structure

• Joint tenancy effect

• no property passes to trustee’s estate

Trustee Act 1925: ss.36 & 39

Core structure

• S.36(1) Who can appoint?

• surviving trustees

• personal representatives of last trustees

Trustee Act 1925: ss.36 & 39

Core structure

• S.36(8)

• retiring trustee may appoint replacement

Trustee Act 1925: ss.36 & 39

CASE LAW

• Re Coates to Parsons 1886

• appointment invalid if retiring trustee fails to participate when required

Trustee Act 1925: ss.36 & 39

CASE LAW

• Re Stoneham ST 1953

• Unfit/incapable trustee can be removed without consent

STATUTORY MAPPING

• Replace trustee what section

S.36

Add trustee

what section

s.36

Retire trustee

what section?

S.39

s.19 TOLATA 1996 (Beneficiary Power)

Background: what cases

• Saunders v Vautier allows trust collapse

• Re Brockbank said beneficiaries cannot force trustee replacement

s.19 TOLATA 1996 (Beneficiary Power)

S19 EFFECT

Allows beneficiaries to direct retirement/appointment

s.19 TOLATA 1996 (Beneficiary Power)

LIMITS

• can be excluded by settlor - s21

s.19 TOLATA 1996 (Beneficiary Power)

PROBLEM

S22 definition may exclude discretionary beneficiaries

Fiduciary Nature of Powers

General rule:

powers exercised by trustees are fiduciary

FIDUCIARY NATURE OF POWERS

meaning

• Must act in beneficiaries’ best interests

• No self-interest or improper motives

FIDUCIARY NATURE OF POWERS

• Applied examples

• Appointing family member for fees → breach

• Retiring due to inability to act impartially → acceptable

• Settlor interfering for self-interest → breach

FIDUCIARY NATURE OF POWERS

• beneficiary power under s.19

• not fiduciary

Court’s Jurisdiction

Equity maxim:

• A trust will not fail for want of a trustee

Court’s Jurisdiction

S.41 Trustee Act 1925

• court may appoint trustees when-

• Expedient

• Impossible or impracticable otherwise

Court’s Jurisdiction

Re Gibbons Trusts

• court is last resort

Courts Jurisdiction

Re May’s Will Trusts

• uncertainty justifies court involvement

Court Removal of Trustees

Key case:

Letterstedt v Broers

Court removal of trustees

• Principle

• welfare of beneficiaries is paramount

• mere friction is insufficient

Court removal of trustees

• Appointment guidance - case?

Re Tempest - follow settlor’s wishes where possible

Vesting of Trust Property

General rule:

• trustees must hold legal title

Vesting of Trust Property

Change of trustees-

Property must be re-vested

Vesting of Trust Property

• Mechanics

joint owners transfer to new set

Vesting of Trust Property

• Failure to comply

• breach of trust

• contempt of court

S.40 Trustee Act 1925

• effect

Deed of appointment vests property where possible

S40 Trustee Act 1925

• Limitations

• Land and shares require formal transfer

Custodian and Managing Trustees

Why used:

• avoid constant re-vesting

Custodian and Managing Trustee

• structure

• Custodian trustee holds property

• Managing trustees run trust

Custodian and managing trustees

• Benefit

• administrative efficiency