Changes to trustees of a trust

Introduction

The starting point when dealing with any changes to the trustees of a trust is always the particular trust deed in question. If however the deed is silent on a particular aspect, then other statutory routes may be explored as set out below. A particular deed for example may include powers to appoint new trustees but no express powers to remove a trustee.

Each situation must be considered on a case by case basis reflecting the provisions of the particular trust deed and legal advice should be taken. This article therefore assumes there are no specific trust deed provisions, and the focus therefore is simply on the potential statutory options available.

The Trustee Act 1925

With regard to trustee ‘changes’, Trustee Act 1925 contains these Sections dealing with appointment and discharge of trustees.

Part III Appointment and Discharge of Trustees

S34 Limitation of the number of trustees
S35 Appointments of trustees of settlements and trustees of land (not relevant to this article)
S36 Power of appointing new or additional trustees
S37 Supplemental provisions as to appointment of trustees (not relevant to this article)
S38 Evidence as to a vacancy in a trust (not relevant to this article)
S39 Retirement of trustee without a new appointment
S40 Vesting of trust property in new or continuing trustees (not relevant to this article)
Part IV Power of the Court

Appointment of new Trustees

S41 Power of Court to appoint new trustees
S42 Power to authorise remuneration (not relevant to this article)
S43 Powers of new trustee appointed by the court (not relevant to this article)

Also of interest

Part II General powers of Trustees and Personal Representatives

S25 Delegation of trustee’s functions by power of attorney

Trustee delegation under S25 above is now contained Sections 5 & 6 of the Trustee Delegation Act 1999.

The Trustee Act 1925 and the Trustee Delegation Act 1999 extend to England and Wales only. 

In Scotland the Trusts and Succession (Scotland) Bill received Royal Assent on 30 January 2024. The trust provisions require regulations from the Scottish ministers to bring them into force (at time of writing, date not yet confirmed). Previously the Trusts (Scotland) Act 1921 primarily governed Scottish trust law. In due course we will add a new technical article focusing on provisions (including those regarding trustees)  which may be relevant for financial advisers.

Number of Trustees

S34 Limitation on the number of trustees

Assume the statutory power of appointment under S36 Trustee Act 1925 applies to the appointment of new trustees (see below). If so, S36(1) is then subject to the restrictions on the number of trustees imposed by S34 - no more than four trustees of a settlement of land or holding land on trust for sale). If land is not involved, then the number of trustees can exceed four.

On the opposite side of the coin, is there a minimum number of trustees required? Although not specified in S34 (which instead limits the number of trustees), if trustees change, a trust can continue but there must always be at least one trustee.

Appointing new or additional trustees

S36 Power of appointing new or additional trustees

This section covers a lot of ground and applies where the outgoing trustee will be replaced.

It deals with the situation where one of the trustees

• Is dead
• Remains outside of the UK for more than 12 months
• Desires to be discharged
• Refuses to act
• Is unfit to act
• Is incapable of acting

It is relatively clear cut for example whether a trustee has been outside the UK for more than 12 months but determining whether or not the trustee is refusing or unfit to act (e.g. convicted of fraud or made bankrupt) can be subjective and less straightforward. And the trustee in question might dispute the allegation.

S36⁽¹⁾ tells us that the surviving/continuing trustees (or trustee) or the personal representatives of the last surviving/continuing trustee may, by writing, appoint one or more others to be a trustee or trustees in place of the outgoing person (assuming there is no one in the deed nominated to do this).

Therefore, if the last remaining trustee dies, then the deceased’s personal representatives can make an appointment (perhaps they might act as trustees themselves?). If they are not prepared to make an appointment, then an application to the Court under S41 (see below) will be necessary.

The appointment is usually done by deed.

S36⁽¹⁾ can therefore be used to remove the trustee in question and appoint a replacement trustee.  Beware though S36⁽⁹⁾ covered below.

S36⁽²⁾ states that where a trustee has been removed under a power contained in the deed then a new trustee or new trustees may be appointed in the place of the removed trustee as if he/she were dead, or, in the case of a company, as if the company desired to be discharged from the trust. S36⁽⁹⁾ states that where a trustee lacks capacity to exercise his/her functions as trustee, and “…is also entitled in possession to some beneficial interest in the trust property...", then a new trustee can’t be appointed unless the Court of Protection agrees. Incidentally a beneficial interest could be an interest in possession but not a prospective interest under a discretionary trust.

If the incapacitated trustee has no beneficial interest and is the only trustee then the personal representatives of the last of the other trustees to die can appoint a replacement.

Retirement but no appointment

S39 Retirement of trustee without a new appointment

If one of the trustees (who is mentally capable) wishes to retire without a replacement trustee being appointed, then S39 is relevant. A trustee who has become mentally incapacitated cannot retire.

Put simply, S39 states if after retirement there remains in place a trust company or at least two trustees, then the person who wishes to retire can do so by deed providing the others (by deed) consent. The end result will be that the outgoing trustee will be discharged without any new trustee being appointed.

If a trustee wishes to retire and that would leave only one trustee then the retiring trustee needs to be replaced. The remaining trustee can do that in the same deed that deals with the retirement.

If there is a desire to remove a trustee but that is not possible either under the deed or under S36, then S41 permits the court to do so in certain circumstances.

Court appointed new trustees

S41 Power of court to appoint new trustees

As set out above, S36 can be used to replace a trustee in certain circumstances such as refusing to act, being unfit to act or incapable of acting. But, if a S36 replacement is not possible then S41⁽¹⁾ can offer a solution. For example, there might be a trustee dispute as to whether a trustee has lost capacity.

Broadly, where difficulties arise from S36 then the Court of Protection can make an order appointing a new trustee or new trustees either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee. In particular, the court may make an order appointing a new trustee in substitution for a trustee who lacks capacity to exercise his/her functions as trustee, or is a bankrupt, or is a company which is in liquidation or has been dissolved.

Note that the Court may appoint a new trustee where there is no existing trustee.

Powers of Attorney (POA)

S25 Delegation of trustee’s functions by POA

Or, more specifically, delegation of trustee’s functions by an Ordinary POA. Assuming the trust deed is silent on the matter, any trustee functions delegated to an Attorney must comply with S25  Trustee Act 1925 (now amended by the Trustee Delegation Act 1999). An Ordinary POA will though be revoked automatically upon the donor losing capacity.

What about a Lasting POA which continues beyond the donor losing capacity? It is not the case that an Attorney will automatically ‘step into the shoes’ of a trustee who has made an LPA and so, the Lasting Attorney will not take on trustee duties where the incapacitated person was a trustee.

An LPA therefore will not usually be applicable to the donor’s trustee duties assuming land isn’t involved. So, if the Lasting Attorney cannot act as trustee, then we need to consider removing that incapacitated trustee and appointing a replacement under S36⁽¹⁾ with the S36⁽⁹⁾ caveat i.e. where the trustee is also a beneficiary then a new trustee can’t be appointed unless under the Court of Protection agrees.