During the administration of a trust, it may become essential or desirable to change a trustee. This article explores important considerations when contemplating retirement, replacement or removal of a trustee.
The trust instrument (the document, usually executed by a settlor, which constitutes the trust) should clearly set out the mechanism by which trustees are to be appointed, replaced or removed, including who has the power to make such changes. If the specific requirements of each trust are not complied with any change of trustee could be invalid.
In some cases, depending upon the drafting of the trust instrument, the statutory powers in respect of changes of trustees, pursuant to the Trustee Act 1961 (the “1961 Act”), may apply. Changes of trustee can be a complex area, and advice should be taken in each case.
Retirement
There may come a time when a trustee decides to step down from their role. The terms of the trust instrument must be reviewed and relevant tax, legal or other professional advice obtained. It is important for the retiring trustee to fully comprehend their rights and responsibilities when retiring.
Where there are continuing trustees, a deed of retirement would be executed, complying with any conditions outlined in the trust instrument (such as notice provisions). There is also a statutory power to retire in favour of continuing trustees at section 38 of the 1961 Act. The deed serves to formally effect the retirement and discharge of the retiring trustee and to vest the trust property in the continuing trustees. An indemnity may also be provided to the retiring trustee.
Appointing new or additional trustees
Regardless of who has the power to appoint a replacement or additional trustee, the outgoing and/or continuing trustee(s) have a duty to consider the suitability of any new trustee.
Professional trustees who are regulated by the Financial Services Authority (“FSA”) must also comply with the requirements of the FSA Rule Book 2016 (“Rule Book”) to ensure a smooth transition to a new trustee(s) when retiring. Again, the express terms of the trust instrument must be complied with.
In some cases, the trust instrument may refer to the statutory power of appointing new or additional trustees (section 35 of the 1961 Act) and which applies in cases where a trustee:
- is dead;
- remains out of the British Isles for more than 12 months;
- desires to be discharged from all or any of the trusts or powers reposed on him;
- refuses or is unfit to act;
- is incapable of acting; or
- is an infant.
Under section 41 of the 1961 Act, the Court has an overriding power to appoint one or more new trustees, either in substitution or addition, when it is deemed necessary and when it would be inexpedient, difficult, or impractical to proceed without the Court’s intervention. This provision is intentionally broad, allowing any individual, with leave of the Court, to apply for such an order.
In some limited cases, if there is no person nominated for the purposes of appointing new trustees by the trust instrument and the beneficiaries are of full age and capacity and (taken together) are absolutely entitled to the property subject to the trust, they may give a written direction to a trustee(s) requiring them to retire and, if they wish, appoint a new specified trustee (section 43A of the 1961 Act).
Removal of a trustee
A trustee can be removed pursuant to the terms of the trust instrument or by the Court’s inherent jurisdiction. Examples of circumstances in which a trustee may be removed include, but are not limited to:
- dishonesty;
- conflict of interest;
- loss of trust and confidence;
- breach of trust; and
- breach of trustee duties.
Supplemental issues
All prior changes of trustees should be checked before a trustee retires, is replaced or appointed. Issues may arise in cases where there have been invalid prior changes of trustees, (for example due to an incorrect number of trustees being in place following a retirement prior to the amendments made to the 1961 Act, by the Trusts (Amendment) Act 2015 regarding the required number of trustees which were not retrospective). There may be other matters to also consider, such as chains of indemnity from which a retiring trustee may want to be released.
Transfer of the assets of the trust
Upon retirement, the outgoing trustee is required to transfer legal title to the assets held by them or vested in them to the new trustee. A trustee must take their time to consider the rules imposed under the Rule Book as applying to a licence holder (where appliable).
Additional professional, legal and tax advice should be sought in the relevant jurisdictions where the assets are being transferred.
Liability of outgoing and incoming trustee(s)
The issue of personal liability for a trustee falls outside the scope of this article. It is advisable for an outgoing trustee to assess any potential liabilities and to consider whether an indemnity, from the remaining or new trustees is necessary.
It is prudent for a prospective trustee to conduct thorough research and familiarise themselves with all relevant information about the trust. The documentation and information to be provided, may vary depending on the facts of each case and, in complex or contentious cases, or where there is any uncertainty, advice should be obtained.
Our Trust and Private Client Team have extensive knowledge on all matters associated with trusts. If you require any further information or would like to make an appointment to meet with one of the team, please contact DQ Advocates on 01624 626999.
Disclaimer
The information and/or opinions contained in this article is necessarily brief and general in nature and does not constitute legal or taxation advice. Appropriate legal or other professional advice should be sought for any specific matter. Any reliance on such information and/or opinions is therefore solely at the user’s own risk and DQ Advocates Limited (and its associates and subsidiaries) is not responsible for, and does not accept any responsibility or liability in connection with any action taken or reliance placed upon such content.
