Trustees: appointment, duties, powers, and liabilities - App...

Learning Outcomes

This article explores the legal framework governing the appointment, retirement, and removal of trustees in England and Wales, with an emphasis on accurate application for SQE1 FLK2 questions. It details the principal methods of appointing trustees, including under the trust instrument, the statutory machinery in the Trustee Act 1925, and the court’s powers to intervene where ordinary appointment routes fail. It outlines who may act as trustee, the statutory limits on the number of trustees for trusts of land, and how those limits interact with overreaching and purchaser protection. It examines the formal requirements and procedural steps for trustee retirement, distinguishing retirement with replacement under section 36 from retirement without replacement under section 39, and highlights the continuing liability of outgoing trustees. It also analyzes the grounds and mechanisms for removing trustees, including express powers, statutory replacement, beneficiary directions under TOLATA 1996, and the court’s jurisdiction, together with the vesting mechanics for transferring trust property when trustees change. Collectively, these outcomes support confident identification of the correct statutory route, drafting and review of deeds dealing with trusteeship, and critical evaluation of trustee composition in problem-style exam scenarios.

SQE1 Syllabus

For SQE1, you are required to understand the practical aspects of appointing, removing, and arranging the retirement of trustees, including the relevant statutory provisions and how they interact with the trust instrument, and to identify the correct procedures and advise on the implications in various scenarios, with a focus on the following syllabus points:

• The different methods for appointing trustees (original and subsequent), and priority between express and statutory powers.
• The statutory criteria for appointing replacement trustees under the Trustee Act 1925, including grounds such as death, refusal, absence abroad, unfitness, incapacity, and infancy.
• The powers of the court to appoint or remove trustees under section 41 TA 1925 and the residual jurisdiction (Letterstedt v Broers).
• The conditions under which a trustee can retire, including retirement by replacement under section 36 and retirement without replacement under section 39 TA 1925.
• The grounds upon which a trustee can be removed, and the limitations of section 36 (replacement not stand-alone removal).
• The role of beneficiaries in trustee appointment and removal under TOLATA 1996 sections 19 and 20, and the requirement of absolute entitlement and unanimity.
• The minimum and maximum numbers of trustees for trusts of land, and the reasons linked to overreaching (LPA 1925, s 27; TA 1925, s 34).
• Vesting of trust property in new trustees, automatic vesting by deed under section 40 TA 1925, and exceptions (eg shares, registered land).
• Practical steps and evidentiary requirements (use of deeds, conclusive statements under TA 1925 s 38, Land Registry registration where relevant).

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Under section 36(1) of the Trustee Act 1925, who primarily has the power to appoint a replacement trustee if the trust instrument nominates someone for this purpose?
   1. The surviving or continuing trustees.
   2. The beneficiaries.
   3. The person nominated in the trust instrument.
   4. The court.
2. What is the maximum number of trustees permitted for a trust of land?
   1. Two
   2. Three
   3. Four
   4. No maximum
3. Can a trustee retire under section 39 of the Trustee Act 1925 if their retirement would leave only one individual trustee remaining?
   1. Yes, if the remaining trustee consents by deed.
   2. Yes, if the beneficiaries consent.
   3. No, unless a trust corporation remains.
   4. No, under any circumstances.

Introduction

The effective administration of a trust depends significantly on the individuals or entities appointed as trustees. Trustees hold legal title to the trust property and are responsible for managing it according to the terms set out by the settlor and the general law for the benefit of the beneficiaries. This article examines the key legal principles and procedures governing the appointment, retirement, and removal of trustees in England and Wales, primarily under the Trustee Act (TA) 1925 and the Trusts of Land and Appointment of Trustees Act (TOLATA) 1996. Understanding these mechanisms is key for ensuring the smooth running and proper governance of trusts.

Trustee identity may change over the life of a trust. Law and practice ensure continuity: statutory powers provide robust routes for appointment and retirement; court jurisdiction addresses situations where ordinary machinery is inadequate; and beneficiaries in certain circumstances can require changes. For trusts of land, the law prescribes minimum and maximum numbers of trustees to protect purchasers and facilitate overreaching of equitable interests. Advisors need a firm understanding of how express provisions in a trust deed interact with statutory defaults, and how property vests when trustees change, to avoid administrative or conveyancing missteps and unintended consequences for beneficiaries.

Key Term: Settlor
The person who creates a trust during their lifetime. If the trust is created by will, this person is known as the testator/testatrix.

Key Term: Trustee
An individual or corporation holding legal title to trust property and managing it for the benefit of the beneficiaries.

Key Term: Trust Instrument
The legal document (eg, a deed or will) that creates the trust and sets out its terms, including the appointment of trustees, identification of beneficiaries, and the trustees' powers and duties.

Appointment of Trustees

The process for appointing trustees can occur at the creation of the trust or subsequently during its administration. The methods vary depending on the trust instrument and statutory provisions. Where a deed contains an express power to appoint, that power typically has priority over the statutory default machinery; otherwise the Trustee Act 1925 steps in with comprehensive provisions.

Initial Appointment

The initial trustees are typically appointed by the settlor when the trust is created. This is usually done within the trust instrument itself (eg, a trust deed or a will). Appointment of original trustees takes effect when the instrument is executed, and, if the settlor is to act as trustee, the trust is constituted as soon as the instrument is properly executed. If others are appointed as trustees, additional steps to vest legal title in them may be required to complete constitution depending on the asset class (eg, stock transfer for shares; registration for registered land).

Initial appointment considerations include suitability (experience, integrity, independence) and practicalities (availability to act and readiness to engage). Where the trust will hold land, best practice is to appoint at least two individual trustees or a trust corporation from the outset to facilitate overreaching and future dealings with capital money.

Subsequent Appointments

Once a trust is established, the settlor generally has no further power to appoint trustees unless such power is expressly reserved in the trust instrument. Subsequent appointments, whether adding new trustees or replacing existing ones, usually rely on express powers within the trust instrument or statutory powers. The identity of the appointor and the order of priority matter.

Express Power of Appointment

The trust instrument may explicitly grant a specific person (the 'appointor') the power to appoint new or additional trustees. This power takes precedence over statutory powers and may prescribe circumstances and procedures for use (eg, consent conditions, classes of eligible appointees). Where the express power is limited to specified grounds (eg, death or desire to be discharged), it must be construed strictly; if a situation falls outside those grounds (eg, a trustee becomes unfit to act due to bankruptcy), resort must be had to the statutory power.

Key Term: Appointor
A person expressly nominated in the trust instrument with the power to appoint new or additional trustees.

Statutory Power of Appointment (TA 1925, s 36)

In the absence of an express power or if the nominated appointor is unable or unwilling to act, section 36(1) of the TA 1925 grants the power to appoint new trustees to:

• The person(s) nominated for this purpose in the trust instrument (if any).
• If there is no such person able and willing to act, the surviving or continuing trustees (this can include a retiring trustee if they join the appointment).
• If there are no surviving or continuing trustees, the personal representatives of the last surviving trustee.

Key Term: Personal Representatives
The collective term for executors (appointed under a will) and administrators (appointed by the court where there is no valid will or no executor willing/able to act) who administer a deceased person's estate.

This statutory power allows for the appointment of one or more new trustees to replace a trustee who:

• Is dead.
• Remains outside the UK for more than 12 consecutive months.
• Wishes to be discharged (retire).
• Refuses to act.
• Is unfit to act (eg, bankrupt; convicted of offences involving dishonesty).
• Is incapable of acting (eg, due to mental or physical incapacity).
• Is an infant (minor).

Section 36(6) TA 1925 also allows the same persons to appoint additional trustees, provided the total number does not exceed four (unless the trust is of personalty only, where the statutory cap does not apply but practical limitations usually govern). In formal conveyancing contexts, section 38 TA 1925 recognises certain statements by the appointor as conclusive in favour of a purchaser (eg, that a trustee is unfit, out of the UK, or incapable), smoothing later dealings in land and giving transactional certainty.

An appointment under section 36 must be made in writing. However, using a deed is advantageous because, under section 40 TA 1925, a deed automatically vests most types of trust property (excluding certain assets like shares and some registered interests) in the new and continuing trustees without requiring separate transfers. Using a deed also provides clear, formal evidence of the appointment and supports Land Registry requirements where a change of trustees affects the legal title of registered land.

Practical steps often include preparing a deed of appointment and retirement (where a replacement is appointed simultaneously), obtaining any consents required under the trust instrument, checking the number of trustees post-change to comply with trust of land requirements, and arranging any additional asset-specific transfers and registrations.

Appointment by Beneficiaries (TOLATA 1996, s 19)

Under section 19 of TOLATA 1996, beneficiaries have a statutory power to direct the appointment of trustees if:

• The trust instrument does not nominate anyone to appoint new trustees.
• All beneficiaries are of full age (18) and capacity.
• Together, the beneficiaries are absolutely entitled to the trust property (ie there are no subsisting prior interests or contingencies and no unborn beneficiaries).
• The beneficiaries act unanimously.

They can give a written direction to the existing trustees to appoint a specific person(s) as new or additional trustee(s), and may also direct a trustee to retire if the above conditions are met. A trustee directed to retire must retire by deed provided reasonable arrangements have been made to protect any rights of the outgoing trustee, and after retirement there will be either at least two individual trustees or a trust corporation remaining. Where section 19 conditions are not satisfied (eg, due to a minor or contingent beneficiary), beneficiaries cannot use this route; their remedy, if change is needed, lies with an application to the court under section 41 TA 1925.

Section 20 TOLATA 1996 supplements section 19 by allowing beneficiaries to direct appointment when a trustee lacks capacity and there is no person willing and able to appoint under section 36 TA 1925.

Appointment by the Court (TA 1925, s 41)

As a last resort, the court has the power under section 41 TA 1925 to appoint new or additional trustees (or replace existing ones) "whenever it is expedient to appoint a new trustee or new trustees, and it is found inexpedient, difficult or impracticable so to do without the assistance of the court". The court considers the settlor's wishes, the beneficiaries' interests, and the efficient administration of the trust (Re Tempest (1866)). It will not lightly interfere with the composition of trustees; however, where the trust cannot be properly administered by existing trustees or appointment machinery proves unusable or contentious, the court will act, and may appoint the Public Trustee or a judicial trustee if appropriate and no suitable private candidate is available.

Key Term: Public Trustee
A statutory trust corporation established under the Public Trustee Act 1906, available to act as trustee where no suitable private trustee can be found.

Number of Trustees

While a trust of personalty can operate with a single trustee, a trust involving land generally requires a minimum of two individual trustees or one trust corporation to give a valid receipt for capital money (eg, proceeds from selling land) and overreach beneficiaries' equitable interests (LPA 1925, s 27). Overreaching protects purchasers by ensuring they take free of equitable interests where the statutory requirements are met.

Key Term: Trust Corporation
A corporation (often a bank or specialist company) appointed to act as a trustee, often for remuneration.

The maximum number of trustees for a trust of land is four (TA 1925, s 34(2)). If more than four are appointed, only the first four named who are willing and able to act become trustees. This limit does not apply to trusts of pure personalty or certain charitable or public trusts. Practically, between two and four trustees is optimal: it supports overreaching and deters unilateral action while maintaining workable decision-making.

Qualifications and Capacity

Generally, any adult (18 or over) with mental capacity can be a trustee. Companies authorised by their constitution can also act. However:

• Minors cannot be trustees (LPA 1925, s 20).
• Persons lacking mental capacity cannot be appointed or continue to act; if capacity is lost after appointment, replacement can be effected under s 36(1) TA 1925 or s 20 TOLATA 1996, and the Court of Protection may need to be involved if the incapacitated trustee also holds a beneficial interest in possession.
• Undischarged bankrupts and those convicted of offences of dishonesty are generally considered unfit to act and can be replaced under s 36(1) TA 1925; more stringent statutory disqualifications apply for specialist trusts (eg, charities and pension schemes).
• Extended absence abroad for more than 12 months is a statutory ground for replacement (TA 1925, s 36(1)). Appointment of a permanently non-resident trustee is not barred, but prolonged absence without effective participation may justify removal and replacement.

Key Term: Court of Protection
The specialist court with jurisdiction over property and affairs for persons lacking capacity, including certain orders relevant to trustee functions where the incapacitated trustee has a beneficial entitlement in possession.

Where a trustee anticipates temporary inability to perform functions, they can delegate their functions to an attorney by deed under section 25 TA 1925 for up to 12 months, with notice to co-trustees and any appointor. The delegating trustee remains responsible for the acts and defaults of the attorney as if their own.

Key Term: Attorney (s 25 TA 1925)
A person appointed by a trustee by deed to exercise trustee functions for up to 12 months; the trustee remains liable for the attorney’s acts and defaults.

Retirement of Trustees

A trustee may wish to step down from their role. The methods for retirement are:

1. Express Power: The trust instrument might contain specific provisions for retirement, including unilateral retirement or retirement on specified grounds. Any express power must be followed strictly.
2. Retirement with Replacement (TA 1925, s 36(1)): A trustee can retire if a new trustee is appointed in their place using the power under s 36(1) (where the trustee "desires to be discharged"). This is often executed in a combined deed of appointment and retirement.
3. Retirement without Replacement (TA 1925, s 39): A trustee can retire without a replacement if:
   • They declare their desire to retire by deed.
   • Their co-trustees and any person with power to appoint trustees consent by the same deed.
   • At least two individual trustees or a trust corporation remain in office after the retirement (for trusts of land). Section 39 does not allow retirement that would reduce the number of trustees below this minimum unless a trust corporation remains.

A person nominated to be trustee can disclaim before acceptance; disclaimer may be by deed, oral or inferred from conduct or inaction, but once the office is accepted, subsequent retirement must comply with section 39 or a valid express power.

Worked Example 1.1

Arthur, Beth, and Charles are trustees of a family trust holding land and investments. The trust instrument does not nominate anyone to appoint trustees. Arthur wishes to retire. Beth and Charles are happy for him to do so and do not wish to appoint a replacement. Can Arthur retire?

Answer:
Yes, Arthur can retire under s 39 TA 1925. His retirement would leave two trustees (Beth and Charles) remaining. The retirement must be effected by deed, and both Beth and Charles must consent by the same deed.

A retiring trustee remains liable for breaches of trust committed during their time in office but is generally not liable for breaches occurring after their retirement, unless they retired specifically to facilitate a breach (Head v Gould [1898]). As a safeguard, it is prudent for the retirement deed to contain appropriate releases and indemnities, though these cannot absolve liability for fraud or deliberate wrongdoing.

Worked Example 1.2

Dina and Euan are the only trustees of a trust of land. Dina wants to retire immediately without appointing a replacement. There is no express retirement power in the deed. Can Dina retire?

Answer:
Not under s 39 unless a trust corporation would remain. Section 39 requires that at least two individuals or a trust corporation remain after retirement. Without appointing a replacement under s 36, Dina’s retirement would leave only one individual trustee, which is impermissible for trusts of land. Dina could retire if a replacement is appointed under s 36, or if the remaining trustee were a trust corporation.

Removal of Trustees

A trustee can be removed from office, sometimes against their will, through several mechanisms:

1. Express Power: The trust instrument may grant a power to remove trustees to specific persons (eg, the settlor or beneficiaries). Such clauses are construed strictly and must be exercised in accordance with their terms.
2. Statutory Power (TA 1925, s 36(1)): As seen earlier, this section allows for the replacement of a trustee on specific grounds (death, refusal, unfitness, incapacity, absence >12 months, etc.). This implicitly involves removal, but only if a replacement is appointed simultaneously. It does not provide a standalone power for existing trustees to simply remove a co-trustee without replacement (unless the trustee consents to retire under s 39).
3. Beneficiary Direction (TOLATA 1996, s 19): Under the same conditions required for appointing trustees, beneficiaries who are sui juris and absolutely entitled can give a written direction requiring a trustee to retire (provided at least two trustees or a trust corporation remain, and other conditions are met). This amounts to removal by beneficiaries.
4. Court Power (TA 1925, s 41): The court can remove a trustee and appoint a replacement where it is expedient to do so and impracticable to accomplish the change without court assistance.
5. Court's Residual Jurisdiction: The court also has a residual power to remove a trustee where their continuance in office would be detrimental to the execution of the trust, for example, due to serious misconduct, conflict of interest, or a complete breakdown in relations making administration impossible (Letterstedt v Broers (1884)). Removal requires more than mere friction or disagreement; the court looks for acts or omissions endangering trust property, want of honesty, proper capacity, or reasonable fidelity.

Where beneficiaries disagree with trustees’ decisions or conduct, note that section 14 TOLATA 1996 allows applications for directions relating to trust of land functions, but does not confer power to appoint or remove trustees; appointment and removal must be pursued under TA 1925 or TOLATA 1996 as set out above.

Worked Example 1.3

Leo and Martha are trustees. Leo discovers that Martha has been using trust funds for personal expenses, amounting to a serious breach of trust. Leo wants Martha removed. The trust instrument is silent on removal. Can Leo remove Martha?

Answer:
Leo cannot unilaterally remove Martha under s 36 TA 1925 without appointing a replacement. He could potentially replace her under s 36 if she is now "unfit" (eg, if her actions led to bankruptcy) or if she refuses to act or is incapable; misuse alone is not expressly listed but may underpin expedience for court action. The beneficiaries might be able to direct her removal under s 19 TOLATA 1996 if they meet the criteria. Alternatively, Leo (or the beneficiaries) could apply to the court under s 41 TA 1925 or its residual jurisdiction to have Martha removed due to her misconduct endangering the trust property.

Worked Example 1.4

A family trust of land has three adult beneficiaries who are absolutely entitled. The trustees are Natasha and Omar. Relations have broken down: the trustees refuse to consult and there are repeated delays. The deed contains no appointment or removal clause. Can the beneficiaries require change?

Answer:
If all beneficiaries are adults with capacity and together absolutely entitled, they can use s 19 TOLATA to direct that an additional trustee be appointed or a trustee retire (with a replacement appointed or with remaining trustees consenting) provided at least two individuals or a trust corporation will remain. If the conditions for s 19 are not met (eg, due to a contingent interest or minor), they could apply under s 41 TA 1925 for the court to appoint or remove trustees, relying on expedience and persistent administration failures.

Vesting of Trust Property in New Trustees

When new or additional trustees are appointed, legal title to the trust property must be vested in them jointly with any continuing trustees to ensure the trustees collectively hold legal title and can perform their functions.

• By Deed (TA 1925, s 40): If the appointment is made by deed under s 36, section 40 automatically vests most types of trust property (land, chattels, many choses in action) in the persons who are the trustees following the appointment. This is a significant advantage of using a deed, reducing administrative steps, and ensuring continuity. For registered land, the change of trustees should also be recorded with HM Land Registry to maintain title clarity and align with the proprietorship register.
• Exceptions to Automatic Vesting: Automatic vesting under s 40 does not apply to certain assets, notably:
  • Shares, stocks, annuities, or other property only transferable in books kept by a company or other body, or in a manner directed by statute (private company shares require a stock transfer form and registration in the company’s register of members).
  • Land or leases subject to restrictions on assignment (eg, requiring consent). Registration requirements under the Land Registration Act also mean changes must be lodged to reflect trustee identities for registered estates.
  • Assets held in accounts with third parties where the institution requires formal change of signatories or mandates (eg, bank accounts).
• Separate Transfers: For assets not covered by automatic vesting (especially shares), separate transfer documents must be executed by the outgoing/continuing trustees to transfer legal title to the new and continuing trustees. Ensure appropriate notices (eg, to debtors for assignment of debts) and registrations are completed, and compliance with any restrictions in leases or charges is obtained.

Worked Example 1.5

Celia retires and Priya is appointed as a replacement trustee by deed under s 36. The trust holds registered land and 500 shares in a private company. What vesting steps are required?

Answer:
For the land, vesting occurs automatically under s 40 on execution of the deed, but HM Land Registry should be notified and the proprietorship register updated to reflect the new trustees. For the shares, automatic vesting does not apply; the continuing trustees and Priya must execute stock transfer forms under the Stock Transfer Act 1963 and deliver them with the share certificate to the company for re-registration in the names of the new and continuing trustees.

Key Point Checklist

This article has covered the following key knowledge points:

• Trustees are appointed initially by the settlor, or subsequently under express powers, statutory powers (TA 1925 s 36), by beneficiaries (TOLATA 1996 s 19, and s 20 for incapacity), or by the court (TA 1925 s 41).
• The priority order under s 36 TA 1925 is: the person nominated in the trust instrument; failing that, the surviving or continuing trustees (including a retiring trustee joining in); failing that, the personal representatives of the last surviving trustee.
• Replacement under s 36 requires specified grounds (eg, death, absence abroad >12 months, refusal, desire to retire, unfitness, incapacity, infancy); it is not a free-standing removal power without replacement.
• For trusts of land, there must generally be a minimum of two individual trustees (or one trust corporation) to overreach and to give valid receipts for capital money (LPA 1925, s 27), with a statutory maximum of four trustees (TA 1925, s 34).
• Minors and persons lacking mental capacity cannot be trustees; bankruptcy and dishonesty convictions may render a trustee unfit. Extended absence abroad for 12 months is a statutory replacement ground.
• Trustees can retire under express powers, by replacement (s 36), or without replacement if conditions under s 39 TA 1925 are met (including consent by deed and two remaining trustees or a trust corporation).
• Beneficiaries who are all adults and together absolutely entitled may direct appointment of additional trustees or require retirement under s 19 TOLATA 1996; they must act unanimously and cannot use s 19 if the trust instrument nominates an appointor.
• The court may appoint or remove trustees under s 41 TA 1925 where expedient, and under its residual jurisdiction (Letterstedt v Broers) where continuance would be detrimental to the trust (mere friction is insufficient).
• Appointments/retirements under statute should preferably be by deed for automatic vesting of most trust property (s 40 TA 1925); separate transfers are needed for assets like shares and changes should be registered appropriately (eg, HM Land Registry, company registers).
• Trustees may delegate functions temporarily by attorney under s 25 TA 1925 (with notice to co-trustees), but remain liable for the attorney’s acts and defaults.

Key Terms and Concepts

• Settlor
• Trustee
• Trust Instrument
• Appointor
• Personal Representatives
• Trust Corporation
• Public Trustee
• Court of Protection
• Attorney (s 25 TA 1925)