The retiring Trustee
A natural time for replacing a Trustee is when a Trustee wishes to retire from their role. In this case, usually, as long as there are other existing Trustees to continue, then the retiring Trustee can do so by executing a deed declaring his wish to be discharged. The continuing Trustees can consent to his discharge and the vesting of the trust property in them. Once this is complete, the outgoing Trustee will be discharged from his role.
Please note that the changes to the 1961 Act brought in by the 2015 Act to make changing Trustees simpler are not retrospective. All prior changes of Trustees should always be checked before a Trustee retires, is replaced or appointed.
Replacing a Trustee
Section 35 of the 1961 Act deals more comprehensively with the instances whereby a Trustee can be replaced by the other Trustees of the Trust, specifically when a Trustee:
2. remains out of the British Isles for more than 12 months;
3. desires to be discharged from all or any of the trusts or powers reposed on him;
4. refuses or is unfit to act;
5. is incapable of acting; or
6. is an infant.
If any of above apply, the legislation provides for the appointment, by writing, of one or more new Trustees to act in the place of the outgoing Trustee. This power can be exercised by the person appointed under the trust instrument to appoint new Trustees, or if there is no such person appointed, then this can be undertaken by the continuing Trustees.
Problem: We’ve run out of Trustees
If there are no Trustees remaining, i.e. if the last Trustee dies, and there is no other person appointed under the trust instrument to appoint new Trustees, then the last Trustee’s personal representatives may appoint one or more Trustees to act in the place of the deceased Trustee.
This task will fall to the executors for the time being who have proved the will of the deceased Trustee, although in situations where the executors intend to renounce then they are able to exercise the power of appointment prior to renouncing, without taking up the role of executor.
Transfer of the assets of the Trust
Under the 1961 Act, the deed of appointment of a new Trustee can, by declaration, effectively vest any estate or interest in any land or chattel subject to the Trust in the new Trustee, without any conveyance or assignment being necessary. Assets will vest with the Trustees as joint tenants.
If there is no such declaration included in the deed of appointment, but there is nothing expressly to the contrary, then the deed will operate as if it had contained the declaration and the interests will vest as above. Where a Trustee is retiring by deed but not being replaced, the above provisions will apply in the same way.
However, there are some exceptions. The above vesting provisions will not extend to land held under a lease where such an assignment would breach the terms of the lease. It will also not extend to any shares, stock, annuity or property which is only transferable in books held by a company or other entity.
Appointing an additional Trustee
There will usually be provision within the trust instrument for the appointment of additional Trustees, subject to the statutory maximum limits within the 1961 Act. There will also usually be a nominated person to deal with the appointment of new or additional Trustees.
Court’s power to appoint new Trustee
By virtue of Section 41 of the 1961 Act, the court has the power to make an order appointing one or more new Trustees, in substitution or addition, where it is expedient to do so and would be inexpedient, difficult or impractical to do without the court’s assistance. This provision is deliberately wide, and any person may, with leave of the court, apply for such an order.
Beneficiaries’ power to direct the retirement or appointment of a Trustee
Where the trust instrument does not nominate a person to deal with the appointment of Trustees and the beneficiaries of the Trust are all of full age and capacity, and collectively are absolutely entitled to the trust property, then the beneficiaries have the power to direct a Trustee to retire and appoint a new Trustee. As long as certain conditions are met, such as ensuring the minimum number of Trustees remain, then the Trustee directed to retire must do so by deed declaring his retirement.
The beneficiaries also have the power, subject to certain conditions, to direct the appointment of a new Trustee in circumstances where the last remaining Trustee is incapable of acting due to mental health incapacity.
How to help the new Trustee
Once the new Trustee has been appointed it may feel like job done, however there are some practical points to consider when a new Trustee has come on board. The new Trustee will require certain information to get up to speed on the Trust if they haven’t got any previous knowledge of the Trust’s background. Typically they would need to be provided with a copy of the trust deed, any letters of wishes and a copy of the latest trust accounts. However depending on the level of knowledge of the Trustee, and whether they have any prior experience of acting as a Trustee, they may require further documentation or guidance.
What about the outgoing trustee?
The acquiring of personal liability by a Trustee is outside the scope of this note, however if you are the outgoing Trustee, you may be concerned that you should not have any continuing liabilities once you have left your role. It would be prudent to consider whether there are any potential liabilities of which you are aware, and whether an indemnity is required from the remaining or new Trustees to protect you from future expense should any issues arise.
In the next part of this series we discuss making distributions from trusts.
The guidance in this note is for information purposes only and is not intended to be exhaustive. It is not intended to constitute legal or other professional advice, and should not be relied on or treated as a substitute for specific advice relevant to particular circumstances. DQ shall accept no responsibility for any errors, omissions or misleading statements or for any loss which may arise from reliance on the information in this note.