How to remove trustees who have lost capacity

8/15/2019 How to remove trustees who have lost capacity

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may not (except in so far as they are authorised to do so) delegate the exercise

of their discretions, even to experts.

3.4 rust instruments may specifically authorise the delegation of trustee functions =

see for example Special $rovision 1 of the S ($ Standard $rovisions 0" nd

(dition . In addition, section " ' 1 " allows the delegation, by power of

attorney, of # the execution or exercise of all or any of the trusts, powers and

discretions vested in !P" as trustee either alone or #ointly with any other person or

persons . Such a delegation must however be for a maximum period of 1"

months.

3. >either a delegation made by a trustee by virtue of an express power in a trust

instrument nor a straightforward delegation under section " ' 1 " 0e.g. under

a power of attorney given under that section alone and not in an )$' will survive

$%s loss of capacity. :hat is needed is a delegation which is capable of surviving

the donor%s loss of capacity = i.e. under a power of attorney such as an ($' or

)$'.

3.! 5istorically, Section 0 of the (nduring $owers of 'ttorney 'ct 1 6 0#($'

1 6 % provided&

‘$u%#ect to any conditions or restrictions contained in the instrument, an attorney

under an enduring power, whether general or limited, may (without o%taining any

consent) execute or exercise all or any of the trusts, powers, or discretions

vested in the donor as trustee and may (without the concurrence of any other

person) give a valid receipt for capital or other money paid.

.? So this section allowed delegation of trustee functions for an unlimited time. his

was in conflict with section "" 0" of the )aw of $roperty 'ct 1 " 0#)$' 1 " % ,

which provided that if land subject to a trust of land was vested in $, a new

trustee needed to be appointed in the place of that person before the legal estate

was dealt with.

.6 he statutory regime was tightened up following the enactment of the rustee

@elegation 'ct 1 0# @' 1 % . Section 4 of @' 1 provided that section

0 of ($' 1 6 does not apply to enduring powers created after the

commencement of the 'ct on 1 7arch "888. >or can it apply any longer to ($'screated before the commencement of the 'ct, in respect of which no application

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for registration was made before the commencement of the 'ct or during the

period of one year from that commencement.

. In the unlikely event that 0a an ($' was created before 1 7arch "888, 0b an

application for registration was made prior to 7arch "881 in respect of the ($'

which was then successful, and 0c the power is still subsisting, section 0 of

($' 1 6 would still apply.

&he post'& *+++ regime

.18+nder the post! @' 1 regime, the only situation in which trustee functions

can in practical terms be delegated on an ongoing basis 1 by $ under an ($' or

)$' is where $ has a beneficial interest in land. Subject to the terms of the

trust instrument and the power of attorney, the donee of a power of attorney isnot prevented from doing an act in relation to 0a land, 0b capital proceeds of a

conveyance of land or 0c income from land, by reason only that the 'ct

involves the exercise of a trustee function of the donor. See section 1 01 @'

1 . he donor of the power is made liable for the acts or defaults of the

donee in exercising any trustee function as if they were acts or defaults of the

donor.

"#ample 3.1$

Aames and Aohn are brothers and are trustees of a property in which

Aames holds a beneficial interest. Beneficial shares are also held by Aohn

and their cousin 7alcolm who lives in 'ustralia. Aames loses capacity but

his wife )inda is his attorney under a registered )$'. he property has

previously been let to tenants but has recently become vacant, and

7alcolm has decided to come back to live in the +C. Aohn and )inda can

decide to allow 7alcolm to occupy the property for a period under a licencewhilst he finds alternative accommodation subject to conditions 0e.g.

payment of an occupation rent and all bills/ costs of upkeep . "

.11 @' 1 also made important provision in relation to section "" )$' 1 " .

Section makes clear that section "" 0" )$' 1 " does not prevent a legal

1 I.e. more than a year. An LPA can be used to delegate functions under section25 TA 1925 but a section 25 delegation can last only 12 months.

2 See the right to impose reasonable conditions a ailable to trustees undersection 1! T"LATA 199#.

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(%) &he power of appointment given by subsection (1) of this section or anysimilar previous enactment to the personal representatives of last surviving orcontinuing trustee shall be and shall be deemed always to have been e"ercisableby the e"ecutors for the time being (whether original or by representation) ofsuch surviving or continuing trustee who have proved the will of their testator orby the administrators for the time being of such trustee without the concurrence

of any e"ecutor who has renounced or has not proved#

(') ut a sole or last surviving e"ecutor intending to renounce, or all thee"ecutors where they all intend to renounce, shall have and shall be deemedalways to have had power, at any time before renouncing probate, to e"ercisethe power of appointment given by this section, or by any similar previousenactment, if willing to act for that purpose and without thereby accepting theoffice of e"ecutor#

( ) Where, in the case of any trust, there are not more than three trustees (a) the person or persons nominated for the purpose of appointing new trusteesby the instrument, if any, creating the trust! or

(b) if there is no such person, or no such person able and willing to act, then thetrustee or trustees for the time being!

may, by writing, appoint another person or other persons to be an additionaltrustee or additional trustees, but it shall not be obligatory to appoint anyadditional trustee, unless the instrument, if any, creating the trust, or anystatutory enactment provides to the contrary, not shall the number of trusteesbe increased beyond four by virtue of any such appointment#

(*) +very new trustee appointed under this section as well before as after all thetrust property becomes by law, or by assurance, or otherwise, vested in him,shall have the same powers, authorities, and discretions, and may in all respectsact as if he had been originally appointed a trustee by the instrument, if any,creating the trust#

( ) Where a trustee lac-s capacity to e"ercise his functions as trustee and is alsoentitled in possession to some beneficial interest in the trust property, noappointment of a new trustee in his place shall be made by virtue of paragraph(b) of subsection (1) of this section unless leave to ma-e the appointment hadbeen given by the .ourt of /rotection#

4. he first Duestion to ask is who is entitled to make the appointment. he section

sets out a hierarchy of people&

01 If there is a person who is given the power to appoint new trustees under the

trust instrument, it is that person only who can make the appointment, unless

they are unable or unwilling to act*0" 9therwise, the surviving or continuing trustee or trustees 0i.e. the trustees

other than $ can make the appointment*0 If there is no surviving or continuing trustee, it can be made by the personal

representatives of the last surviving or continuing trustee.

4.4 he second Duestion to ask is whether an application to the 3ourt of $rotection isreDuired. It is easiest to consider this by using examples.

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"#ample 4.4&

:alt and Aesse are the trustees of a settlement in which they also have a beneficial

interest. :alt loses capacity. +nder the trust instrument, a power of appointment of

new trustees is given to Saul. Saul may execute a deed of retirement and

appointment removing :alt as trustee and appointing himself as trustee in addition

to Aesse. here is no need for an application to be made to the 3ourt of $rotection

as the appointment is being made under section - 01 0a , not section - 01 0b =

see the terms of subsection 0 .

"#ample 4.4(

Eacts as above, save that this time there is no express power of appointment

contained in the trust instrument. Aesse can execute a deed of retirement and

appointment of new trustee, but this time leave of the 3ourt of $rotection will be

reDuired.

"#ample 4.4)

Eacts as in (xample 4.4', save that this time 0a there is no express power of

appointment and 0b :alt does not have a beneficial interest in the trust fund. Aesse

can execute a deed of retirement and appointment of new trustee, no application to

the 3ourt of $rotection is reDuired.

4. Section - covers most situations where $ lacks capacity. 5owever, there are

some cases where it will not work, or will not be sufficient on its own&

"#ample 4. &

Fus is the sole trustee of a settlement. 5e loses capacity. here is no express power

of appointment under the trust. >or are there any surviving or continuing trustees

who can make the appointment. Section - cannot be used. Fus must be removed

by other means.

"#ample 4. (

5ank and 7arie are the trustees of a settlement. 5ank dies and then 7arie loses

capacity. here is no express power of appointment under the trust. 5ank cannot be

termed a surviving or continuing trustee, such that his personal representatives can

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exercise the statutory power, since he died before 7arie lost capacity. Section - is

unavailable.

"#ample 4. )

:alt and Aesse are the trustees of a settlement which holds property which falls

within section 48 04 ' 1 " 0e.g. certain mortgages, certain leases, and certain

stocks and shares . :alt loses capacity, and Aesse appoints a new trustee in his

place under section -. 9wing to the effect of section 48 04 ' 1 " , the property

which falls within that subsection will not vest in the new trustee. 3onsider instead of

using section - an application under section 41 or 4 ' 1 " 0latter dealt with

below .

&he procedure where an application is to %e made to the /ourt of Protection under section01 (+) & *+23

4.- 'n application can be made without permission where it is made by a co!trustee

or other person with the power to appoint a new trustee. he application should

be made in Eorm 39$1 together with evidence of $%s lack of capacity to exercise

his trustee functions in Eorm 39$ . 'ny deputy who has been appointed should

be notified of the application.

4.? @etailed procedural reDuirements are set down in $ractice @irection F to the

3ourt of $rotection 2ules "88?.

. %ection 4 of T& 1'2

.1 Section 4 provides a useful alternative in some circumstances to either a

section - appointment or an application to the 5igh 3ourt. he drafting of

section 4 itself is opaDue. 5owever, in summary, it allows an application to the

3ourt of $rotection for removal of $ where 0a $ has a beneficial interest in the

trust fund, 0b a deputy has been appointed for $ or an application for the

appointment of a deputy has been made but not determined and 0c $ has lost

capacity to act as trustee. It does not work where $ has an attorney under an

)$'. 's well as removing and replacing $, the court can make orders vesting

trust property in the new trustees. hese powers could be of benefit in the

scenarios discussed in (xamples 4. ' 0assuming Fus has a beneficial interest

and 4. 3 above.

!. *emoval and appointment under section 41 T& 1'2

-.1 Section 41 01 ' 1 " provides&

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(1) &he court may, whenever it is e"pedient to appoint a new trustee or newtrustees, and it is found ine"pedient difficult or impracticable so to do withoutthe assistance of the court, ma-e an order appointing a new trustee or newtrustees either in substitution for or in addition to any e"isting trustees ortrustees, or although there is no e"isting trustee#

0n particular and without prejudice to the generality of the foregoing provision, the court may ma-e an order appointing a new trustee insubstitution for a trustee who lac-s capacity to e"ercise his functions as atrustee, or is a ban-rupt, or is a corporation which is in li uidation or hasbeen dissolved#

-." his section allows an application to the 5igh 3ourt 03hancery @ivision for the

removal of $ as trustee and his replacement with someone else. he court can

make any necessary vesting orders. 9ne could turn to this section in (xample

4. ' if Fus does not have a beneficial interest in the trust fund. 9r, it can be used

if other applications need to be made at the same time to the 3hancery @ivision

concerning the administration of the trust = often the case.

-. If it is not desired to replace $ for any reason = for example because there are

already multiple trustees = then an application could instead be made for the

removal of $ as trustee under the inherent jurisdiction of the 3hancery @ivision.

5owever, the court may well take the view in many cases that it is appropriate for

a replacement for $ to be appointed under section 41 ' 1 " .

-.4 >ormally the costs of parties to a successful removal application under section 41

or 4 ' 1 " or under the inherent jurisdiction will be ordered to be paid on the

indemnity basis out of the capital of the trust fund.

+. %ection 1, -1 -/ 0)& 2$$ – e#ercising s power to appoint a new trustee

"#ample +.1

'dam and Aohn are the trustees of a family settlement. Aohn has lost

capacity. +nder the trust instrument, Aohn is given the power to appoint a

new trustee in place of any trustee who has lost capacity.

?.1 If Aohn does not have a beneficial interest in the trust fund, then the

straightforward approach here is to use section - ' 1 " , which reDuires only a

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deed of retirement and appointment of new trustee to be executed by 'dam to

remove Aohn as trustee. If Aohn does have a beneficial interest in the fund, leave

would be reDuired from the 3ourt of $rotection under section - 0 ' 1 " to

make the appointment which is proposed.

?." 5owever, an alternative route where $ has a beneficial interest in the fund would

be to use section 16 01 0j 73' "88 to make the appointment. +nder this

section, the powers of the 3ourt of $rotection regarding $%s property and affairs

extend to # the exercise of any power (including a power to consent) vested in P

whether %eneficially or as a trustee or otherwise . his includes Aohn%s power to

appoint a new trustee in place of any trustee who has lost capacity. Section 16 01

0j is often cited as an alternative in section - 0 applications.

?. Section 16 01 0j is also available where the person given the express power has

lost capacity, and the trustee who needs to be removed has also lost capacity. In

this scenario, section - may be unavailable if the trustee lacking capacity is the

sole trustee, so section 16 73' "88 proves Duite useful.

?.4 Section 16 can further be used to exercise $%s power to retire as trustee under

section ' 1 " , but in general the 3ourt of $rotection prefers $ to be

replaced with another trustee rather than simply to retire.

,. &ppointments y the eneficiaries under T 5&T& 1''!

,.1 Section "8 9)' ' 1 - provides a further alternative to section - ' 1 " in

some circumstances, where that section cannot be used. he section applies

where 0a a trustee lacks capacity to exercise his functions as trustee 0b there is

no person who is both entitled and willing and able to appoint a trustee in place of

him under section - 01 of ' 1 " and 0c the beneficiaries under the trust are

of full age and capacity and 0taken together are absolutely entitled to the

property subject to the trust. >ote that the trust does not have to be a trust of

land.

,.2 $ obviously cannot be a beneficiary if section "8 is to be used, since then the

beneficiaries under the trust would not all have capacity.

,.3 +nder section "8 0" , the beneficiaries may give to 0a a deputy appointed for $

by the 3ourt of $rotection, 0b an attorney acting for $ under a registered ($' or

)$' or 0c a person authorised for the purposes by the 3ourt of $rotection a

written direction to appoint by writing the person or persons specified in the

direction to be a trustee or trustees in place of the incapable trustee.

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,.4 he direction has to be given by all the beneficiaries unanimously, usually by

means of a single direction 0although identical directions by each beneficiary

would suffice .

,. 'n appointment under section "8 will result in the vesting of all assets in the

trustees save for those specified in section 48 04 ' 1 " , providing the

appointment is made by the person concerned by deed. 5ence, if there are any

assets falling within section 48 04 ' 1 " , an appointment under section "8

may not be appropriate.

,.! >ote that some trust drafting precedents exclude the operation of section "8

9)' ' 1 -, in which case it is not available. Similarly, it is possible in the case

of a trust created before 1 Aanuary 1 ? 0the date of commencement of 9)' '

for the settlor to execute a deed providing that section "8 should not apply.

9therwise the section applies to trusts, whenever created.

Things which won t wor6

. Sometimes it is as useful to know what doesn%t work as what does workG

xercise of trustee functions %y the /ourt of Protection under section *4 5/ 2663

18. +nder section 16 01 0j 73' "88 , the powers of the 3ourt of $rotection regarding

$%s property and affairs extend as stated above to ‘the exercise of any power (including a power to consent) vested in P whether %eneficially or as a trustee or

otherwise . In theory, this could include the court actually exercising trustee functions

rather than removing the trustee. 5owever, in practice the court is unlikely to want to

get involved in the minutiae of trustee decision!making, especially where the trustee

who has lost capacity is only one of a number of trustees. Instead it is likely to see

replacement of the trustee who has lost capacity as the preferable course. (ven

where $ is the sole trustee and, for example, an urgent decision needs to be taken in

relation to the trust which would warrant Pu%lic &rustee v /ooper approval given the

risk of challenge by other beneficiaries going forward, it is probably more appropriate

to make an application to the 3hancery @ivision for removal of the trustee and for

blessing of the decision to be taken.

/an a deputy exercise P s functions as trustee

11. he answer is no. Section "8 73' "88 provides that a deputy may not be given

powers with respect to the exercise of any power vested in $ as trustee. his

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therefore rules out the idea of making a deputyship application in order for the deputy

to exercise $%s powers under the trust.

)apacity

1". 5ow do you decide whether or not $ lacks capacityH In many cases it will be obvious,but not all.

1 . he test under the 73' "88 clearly applies in respect of&

01 :hether or not the 3ourt of $rotection has jurisdiction to exercise on $%s behalf a

power to appoint new trustees under section 16 01 0j 73' "88 *0" 'pplications under section - 0 ' 1 " *0 @irections by beneficiaries under section "8 9)' ' 1 -, which specifically

refers to the 73' "88 test*

04 Section 4 ' 1 " applications.14. In other contexts = e.g. section - appointments where the 3ourt of $rotection is not

going to be involved, it is likely to be enough if the test in 73' "88 is satisfied.

5owever, it would seem prudent to make an application under section 41 ' 1 " , if

for example there is evidence that the trustee is no longer finding it easy to discharge

his duties but the position regarding capacity is unclear or an assessment of capacity

cannot be obtained.

:I))I'7 ('S"4 7ay "81-

! See comment to that e(ect in Lewin on Trusts at 1#)'12.

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How to remove trustees who have lost capacity