Trusts - Roles, Appointment and Removal of Trustees

What is the fundamental role of a trustee?

- To hold property for the benefit of others.

- has all powers of a legal owner but must exercise for benefit of beneficiaries which can be enforced personally against them

- there is always an element of obligation on the trustee - would not work if there are no enforceable obligations

Are individuals required to accept the role of trustee?

- No, the role is voluntary and individuals can refuse the position.

- An alternative trustee will be appointed to ensure the trust does not fail - will not fail for want of trustee

What is the traditional compensation structure for trustees?

- Trustees typically serve without pay unless expressly granted remuneration by the trust

- but professional trustees are entitled to reasonable remuneration and held to a higher standard of care.

n.b. they can recover expenses

What are the key points about having multiple trustees? How do they share liability?

- Multiple trustees must act together

- can be jointly and severally liable for breaches of trust for lack of action of one

What is the role of trustees under express trusts?

- Trust has been expressly created so an obligation will be intentionally imposed on the trustee

What is the 'irreducible core' of trustee duties?

A general duty to act honestly and in good faith for the benefit of the beneficiaries.

What distinguishes commercial purpose trusts from other types of trusts?

They may involve complex investment strategies and often have professional, paid trustees.

What are the obligations of charity trustees?

They must comply with statutory obligations and oversee the charity's operations.

Who can be a trustee?

any adult of sound mind

- the trust instrument may contain further rules on who may act

- there are some further statutory restrictions depending on the type of trust (eg bankrupt cannot be a trustee)

How many trustees to appoint?

- no min or max - depends on rules under trust instrument

- exception for trusts of land because legal title may only be held by max of 4 persons - also necessary for such trusts to have min 2 trustees to give good receipt

n.b. statutory powers to appoint new trustees cannot be used to increase number beyond 4

Process for appointing trustee of a new inter-vivo (lifetime) trust?

settlor can choose:

- a transfer on trust

- a self-declaration (as long as requirements met); or

Who is appointed trustee on a transfer on trust?

- trust is constituted once legal title transferred from settlor to trustee

- trustee can decline the role - so settlor should only transfer title once confirmed trustee is willing

What happens if settlor transfers to intended trustee who then disclaims trusteeship?

intended trustee holds property on bare trust for intended Bs pending appointment of new trustee

Who appoints the trustee on a transfer on trust if intended trustee disclaims trusteeship?

- trust instrument may contain provisions

- if no express power, disclaiming trustee has power to appoint their own replacement

if disclaiming trustee doesn't wish to exercise:

- Bs with rights (Saunders v Vautier rights) have power to appoint; or

- last resort - court can appoint trustees

What is the process of appointing trustees of new testamentary trusts?

- PRs must distribute estate in accordance with will - which includes ensuring legal title is vested in intended trustees of any trusts

- if will names trustee other than PRs - PRs must transfer trust property to them

What if the trustee under a testamentary trust is unwilling/unable to act?

PRs temporarily hold property on trust until new trustees are appointed

How are new trustees appointed if trustees under a testamentary trust is unwilling/unable to act?

- if T named executors as trustees, they have power to appoint new trustees in their place

- if T named a third party who cannot act, PRs are temporarily trustees and have power to appoint permanent trustees

- if T named a TP as trustee but they wish to disclaim, they have power to appoint their own replacement - if they don't want to exercise this power, PR have power to appoint permanent trustees

What will PRs need to do if there is a gift to a minor in the will?

- where a legacy is given absolutely to a minor, minor cannot give valid receipt

- PRs therefore hold assets on trust for the minor (investing with their powers and using powers of maintenance and advancement until age 18)

- instead - PRs can appoint trustees (usually parent/guardian) and give the legacy to those trustees rather than retaining

n.b. for testamentary gifts to minors, it is necessary to appoint at least 2 trustees (but no more than 4) or a trust corporation

5 ways of appointing new trustees of a subsisting (already in existence) trust?

may be appointed:

1. by anyone given an express power to appoint by trust instrument

2. by current or outgoing trustees (statutory power)

3. by beneficiaries, using statutory powers in exercising Saunders v Vautier rights

4. by Charity Commission (for charitable trusts)

5. by court (last resort)

Can settlor appoint new trustees once the trust is created?

- no automatic right to do this merely through role as settlor

- unless they are a trustee/have express powers etc.

Appointing new trustees of a subsisting trust - what is express power to appoint by trust instrument?

- trust instrument may contain express powers

- eg settlor may reserve power to appoint trustees for themselves or choose someone else who can

How do current/outgoing trustees replace existing trustees in a subsisting trust - who can appoint new trustees?

- the person named for this purpose in the will/trust instrument (if any) - can choose their own replacement

- if no one is named by will/trust, then the continuing trustee(s) (or PR of last surviving trustee) can appoint a new trustee

When can current/outgoing trustees replace existing trustees in a subsisting trust?

this power can be exercised:

(a) on death of trustee (or trustee of testamentary trust predecease T),

(b) if trustee is abroad for over a year,

(c) if an appointed trustee is a minor or lacks capacity,

(d) if trustee wishes to retire, refuses to act or is unfit

Can trustees removed from their role come back again as replacements?

- trustees removed from role/dissolved corporate trustees cannot act

- treated as if they'd died = if there is no alternative, PRs can appoint alternative trustees

Does power to appoint trustees in subsisting trust need to be in writing? (when appointed by trustees/beneficiaries)

Yes, must be exercised in writing

Appointing new trustees of a subsisting trust - by current/outgoing trustees, using statutory powers - appointing additional trustees

if additional trustee is to be appointed and no current trustee is being replaced, power to appoint new trustee (in writing) lies with:

1. person named for this purpose by will/trust deed; or

2. if there is no one named, then current trustees

n.b. - power cannot be used to increase number beyond 4 (unless express clause in trust instrument permitting)

How can beneficiaries use powers in exercising Saunders v Vautier rights to appoint new trustees of a subsisting trust?

- statutory power in ToLATA which gives Bs with Saunders rights the power to direct trustees to appoint a new trustee

- power must be exercised in writing

- power cannot be used where trust instrument contains express power to appoint trustees

How can the court appointing new trustees of a subsisting trust? (last resort)

- core principle that equity will not allow a trust to fail for want of a trustee

- if appointing trust corp - power to authorise payment of remuneration to corp

- trustees appointed by court have same powers as if originally appointed

- if no suitable trustee - appoint Public Trustee

What factors will the court consider when exercising power to appoint a trustee?

- wishes of settlor or testator

- should not appoint a trustee where Bs dispute over their appropriateness

- whether appointment will promote or impede trust administration (court will take into account views of current trustees, not be bound by them)

How can a trustee be removed?

- provisions in the trust instrument

- current trustees using statutory powers.

- court's general powers

- Charity Commission has the power to remove charity trustees.

What is the statutory power for removal of trustees?

- person with statutory power to appoint (eg current trustees) can remove and appoint new trustees

Under what circumstances can the court remove a trustee?

- The court can remove a trustee if they are bankrupt, lack capacity, or if a company trustee is in liquidation or has been dissolved

- or in cases where the trustees where it is not appropriate for them to remain in office (eg they are dishonest)

- same powers for Charity Commission where trust is charitable

What is the required procedure for a trustee to voluntarily retire?

- must sign a deed declaring an intention to retire,

- ensure at least two trustees (or a trust corporation) remain,

- obtain written consent by deed from co-trustees,

- carry out necessary actions to vest trust property in remaining trustees

What rights do beneficiaries have to compel a trustee to retire?

- Beneficiaries with Saunders v Vautier rights can compel a trustee to retire

- must be in writing

- must be unanimous

- can only be done if following removal/retirement, two trustees/trust corp remains