Trustees: appointment, duties, powers, and liabilities - Appointment, removal, and retirement of trustees

Learning Outcomes

This article explores the legal framework governing the appointment, retirement, and removal of trustees in England and Wales. It details the various methods of appointing trustees, including under the terms of the trust instrument, statutory powers conferred by the Trustee Act 1925, and court intervention. It also outlines the requirements for a trustee's retirement and the grounds upon which a trustee may be removed. Understanding these processes is essential for advising on trust administration and ensuring compliance with legal obligations, enabling effective application to SQE1 assessment questions.

SQE1 Syllabus

For SQE1, you are required to understand the practical aspects of appointing, removing, and arranging the retirement of trustees. This includes knowing the relevant statutory provisions and how they interact with the trust instrument. Your knowledge should enable you to identify the correct procedures and advise on the implications in various scenarios.

As you work through this article, remember to pay particular attention in your revision to:

  • The different methods for appointing trustees (original and subsequent).
  • The statutory criteria for appointing replacement trustees under the Trustee Act 1925.
  • The powers of the court to appoint or remove trustees.
  • The conditions under which a trustee can retire.
  • The grounds upon which a trustee can be removed.
  • The role of beneficiaries in trustee appointment and removal under TOLATA 1996.

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.

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.

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).

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.

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.

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.

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:

  1. The person(s) nominated for this purpose in the trust instrument (if any).
  2. 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).
  3. 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).
  • 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 there is no maximum).

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) in the new and continuing trustees without requiring separate transfers.

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.
  • 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).

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)).

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.

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.

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.
  • Undischarged bankrupts are generally considered unfit to act, particularly for charitable or pension trusts, and can be replaced under s 36(1) TA 1925.

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.
  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').
  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.

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]).

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).
  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 doesn't 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.
  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.

Worked Example 1.2

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 possibly 'incapable' (though less likely). 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.

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.

  • 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, choses in action) in the persons who are the trustees following the appointment. This is a significant advantage of using a deed.
  • Exceptions to Automatic Vesting: Automatic vesting under s 40 does not apply to certain assets, notably:
    • Legal estates or interests in land held subject to a mortgage (where the transfer needs mortgagee consent).
    • Shares, stocks, annuities, or other property only transferable in books kept by a company or other body, or in a manner directed by statute.
    • Land held under a lease which contains a covenant against assignment without consent, unless consent has been obtained prior to the deed's execution or the requirement is waived.
  • Separate Transfers: For assets not covered by automatic vesting (especially shares), separate transfer documents (eg, stock transfer forms) must be executed by the outgoing/continuing trustees to transfer legal title to the new and continuing trustees. Registration with the relevant company or authority is also required.

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), or by the court (TA 1925 s 41).
  • There must generally be a minimum of two trustees (or one trust corporation) for trusts involving land, with a maximum of four.
  • Minors and persons lacking mental capacity cannot be trustees; bankruptcy may render a trustee unfit.
  • Trustees can retire under express powers, by replacement (s 36), or without replacement if conditions under s 39 TA 1925 are met (including consent and two remaining trustees).
  • Trustees can be removed under express powers, statutory replacement powers (s 36), by beneficiaries (s 19 TOLATA), or by the court (s 41 TA 1925 or residual jurisdiction) if their continuation is detrimental to the trust.
  • Appointments/retirements under statute should preferably be by deed for automatic vesting of most trust property (s 40 TA 1925), though separate transfers are needed for assets like shares.

Key Terms and Concepts

  • Settlor
  • Trustee
  • Trust Instrument
  • Appointor
  • Personal Representatives
  • Trust Corporation
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