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

Learning Outcomes

This article outlines trustee eligibility in England and Wales and clarifies how these rules are tested in SQE1 FLK2. It explains the requirements of legal capacity, focusing on age and mental capacity, and the consequences of appointing minors or persons lacking capacity. It details when individuals, companies and trust corporations may act as trustees, including when a trust corporation may act alone and give a valid receipt for capital money. It examines statutory and practical disqualifications, such as undischarged bankruptcy, dishonesty convictions, prolonged absence from the UK, and other grounds rendering a trustee unfit or incapable. It reviews the statutory framework governing the minimum and maximum number of trustees, especially for trusts of land, and the interaction between those rules and overreaching under s 27 LPA 1925. It analyzes the effect of invalid appointments and later incapacity on the validity of the trust and summarises the main statutory mechanisms for removal, replacement and vesting of trust property (TA 1925 ss 36, 40, 41; TLATA 1996 s 19), enabling confident application to exam-style problem questions.

SQE1 Syllabus

For SQE1, you are required to understand who may act as a trustee and the legal rules governing eligibility, with a focus on the following syllabus points:

• legal capacity and who may act: adults, mental capacity, minors (LPA 1925 s 20)
• rules preventing minors from acting and effect on the appointment
• corporations and trust corporations acting as trustees (including acting alone)
• practical and statutory disqualifications (e.g. undischarged bankrupts and persons convicted of dishonesty for charity/pension trusts)
• consequences of appointing an ineligible trustee and statutory mechanisms for replacement (TA 1925 ss 36, 41; TLATA 1996 s 19)
• minimum and maximum number of trustees; special rules for trusts of land (TA 1925 s 34(2); LPA 1925 s 27)
• overreaching and valid receipt of capital money on sale by two trustees or a trust corporation.

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. Which of the following individuals generally possesses the capacity to be appointed as a trustee?
   1. A 17-year-old student.
   2. An individual declared bankrupt who has not yet been discharged.
   3. A person lacking mental capacity to manage their own affairs.
   4. A 30-year-old solicitor of sound mind.
2. What is the minimum number of individual trustees required to give a valid receipt for the proceeds of sale of land held in trust?
   1. One
   2. Two
   3. Three
   4. Four

3. True or false: A company specifically incorporated to act as a trustee (a trust corporation) can act as a sole trustee, even for trusts involving land.

4. If a settlor appoints four individuals as trustees for a trust of land, but one of them is only 16 years old, how many validly appointed trustees are there initially?
   1. One
   2. Two
   3. Three
   4. Four

Introduction

Selecting appropriate trustees is a critical step in establishing and administering a trust effectively. The law imposes specific requirements regarding who can legally fulfil this role, ensuring that those appointed possess the necessary capacity and integrity to manage trust assets for the benefit of the beneficiaries. Understanding these requirements is fundamental for advising clients on setting up trusts and for addressing issues that may arise concerning existing trustee appointments. This article examines the legal rules governing the capacity and eligibility of individuals and corporations to act as trustees.

Who Can Be a Trustee?

The fundamental principle is that any person capable of holding property in their own right can potentially be appointed as a trustee. However, legal capacity, statutory rules, and certain disqualifications significantly limit who can actually serve. Appointments that contravene mandatory restrictions (for example appointing a minor) are void. Even where an appointment is valid at inception, trustees may later become incapable or unfit to act; the statutory framework provides mechanisms to replace them to preserve proper administration.

Individuals as Trustees

An individual appointed as a trustee must have the legal capacity to hold and manage property. This generally means they must be:

• Adults: Individuals must have reached the age of majority, which is 18 years old in England and Wales. The appointment of a minor as a trustee is void.
• Mentally Capable: They must possess the mental capacity to understand the duties involved and manage the trust property. A person who lacks capacity under the Mental Capacity Act 2005 cannot act as a trustee. If an existing trustee becomes incapable of acting (for example due to mental or severe physical incapacity), they can be replaced under statutory powers.

Beyond age and capacity, there is no general statutory bar on lay trustees. Professional qualifications are not required, though trustees owe fiduciary duties and a duty of care measured against a reasonable person standard, heightened for paid or professional trustees.

Key Term: Minor
In England and Wales, a person under the age of 18 years.

Additional considerations affecting eligibility and continuation in office include:

• Residence: A trustee who remains outside the UK for more than 12 months may be replaced under Trustee Act 1925 s 36(1) on the ground of being “outside the United Kingdom for more than twelve months.” Appointment of a non-resident is not automatically invalid, but prolonged absence is a statutory ground to replace them for administrative practicality.
• Refusal or disclaimer: A person who refuses to act, or disclaims the trusteeship, may be replaced under TA 1925 s 36(1).

As co-owners of land always hold the legal estate as joint tenants in law, the property will be vested in up to four trustees who must be of full age and sound mind. This interfaces directly with the maximum number rules considered below.

Minors

A person under the age of 18 (a minor) cannot be appointed as a trustee of any trust, whether involving land or other assets. Section 20 of the Law of Property Act 1925 explicitly states that the appointment of a minor as a trustee is void. The trust remains valid, but the attempted appointment fails.

If a settlor attempts to appoint a minor alongside adult trustees, the appointment of the minor fails, and the legal title vests only in the adult trustees. If the settlor attempts to appoint only minors, the appointments fail entirely; legal title will not vest as intended and corrective action is required. In practice, replacement trustees must be appointed under TA 1925 ss 36 or 41 (or by an express power in the trust instrument), failing which the court may appoint.

Key Term: Corporation
A legal entity, such as a company, that is separate from its owners or members.

Corporations as Trustees

A corporation can act as a trustee, provided it has the power to do so under its constitution (its memorandum and articles of association or charter). The corporate vehicle can be a general company or a specialist trust corporation. Many banks and financial institutions have subsidiary companies specifically set up to act as professional trustees. Corporate trustees often bring continuity (they do not die or become incapacitated) and professional proficiency, and may be advantageous for complex trusts or where the trust is intended to last for an extended period.

Key Term: Trust Corporation
A corporation appointed to act as a custodian trustee or trustee. A “trust corporation” within the Trustee Act 1925 may act alone and is treated as a “trust corporation” for statutory purposes, including giving valid receipts for capital money under s 27 LPA 1925.

Trust corporations can act as a sole trustee even where trust property includes land and capital money arises. When a purchaser pays capital money to a trust corporation, the payment overreaches equitable interests in the land provided the other statutory requirements are met.

While corporate trustees are eligible, the trust instrument may impose additional requirements (e.g., require at least two trustees or a mix of lay and professional trustees). A corporate trustee must also comply with fiduciary duties and the statutory investment framework; fees and compliance obligations should be considered by settlors when selecting a corporate trustee.

Disqualifications

Certain circumstances can disqualify an individual from acting as a trustee or justify their removal, even if they are an adult of sound mind. Understanding the distinction between automatic statutory bars and grounds that make a person “unfit to act” is important:

• Undischarged Bankruptcy: While not an automatic statutory bar for all private trusts, an undischarged bankrupt is generally unsuitable and may be removed as “unfit to act” (TA 1925 s 36(1)). Automatic bars exist for specified trusts:
  • Charity trustees: statutes disqualify undischarged bankrupts, persons convicted of certain offences (especially dishonesty), and those disqualified from acting as company directors (Charities Act 2011 and updates under the Charities (Protection and Social Investment) Act 2016).
  • Pension scheme trustees: similar automatic disqualifications apply (Pensions Act 1995 s 29).
• Convictions for Dishonesty: For private trusts, such convictions are not an automatic legal bar, but in practice will often render a person unsuitable and justify their replacement. For charitable and pension trusts, specified offences lead to automatic disqualification.
• Mental Incapacity: A person who lacks mental capacity cannot be appointed. If a serving trustee becomes incapable, they can be replaced under TA 1925 s 36(1) on grounds of incapacity.
• Prolonged Absence or Refusal to Act: A trustee who remains outside the UK for more than twelve months, refuses to act, or is otherwise unfit or incapable may be replaced under the statutory appointment power.

Where an individual later becomes unfit or is disqualified (for example, due to bankruptcy or incapacity), statutory mechanisms exist for their removal and replacement without undermining the validity of the trust.

Worked Example 1.1

Ahmed wishes to set up a trust for his grandchildren. He is considering appointing his brother, Bilal, and his daughter, Chloe, as trustees. Bilal was declared bankrupt last year and has not yet been discharged. Chloe is 17 years old. Can both Bilal and Chloe act as trustees?

Answer:
No. Chloe cannot be appointed as a trustee because she is a minor (under 18). Her appointment would be void. Bilal, being an undischarged bankrupt, is generally considered unfit to act as a trustee for a private trust and may be removed. He is automatically disqualified for charity or pension trusts. Ahmed should appoint eligible adults of sound mind (or a trust corporation).

Worked Example 1.2

Priya settles her rental property on trust of land. She appoints a single professional corporate trustee, X Trust Corporation Ltd, to administer and eventually sell the property. A purchaser later asks whether paying the sale proceeds to that sole corporate trustee will overreach the beneficiaries’ interests. Is the receipt valid?

Answer:
Yes. A trust corporation can act as a sole trustee and give a valid receipt for capital money under s 27 LPA 1925. Payment of the purchase money to a sole trust corporation will overreach the beneficiaries’ equitable interests, provided other statutory requirements are met.

Worked Example 1.3

Liam created a trust with two individual trustees. One trustee moves abroad and remains outside the UK for 14 months, rarely engaging with trust business. The other trustee wonders whether they can replace the absent trustee without court proceedings.

Answer:
Yes. Under TA 1925 s 36(1), a trustee who remains outside the UK for more than twelve months may be replaced. The continuing trustee(s) (or a person nominated in the trust instrument) can appoint a replacement by writing (preferably by deed to take advantage of automatic vesting under TA 1925 s 40).

Worked Example 1.4

A trust of land instrument names four trustees. One of them turns out to be 16. How many validly appointed trustees are there at the outset, and what should be done?

Answer:
Three. The minor’s appointment is void under LPA 1925 s 20, but the trust remains valid and legal title vests in the adult trustees. A replacement adult trustee should be appointed under TA 1925 s 36(1) or by court order under s 41 if needed.

Worked Example 1.5

Helen appointed herself and two friends as trustees of her family trust. Helen later loses mental capacity. Can trust administration continue, and how is her position addressed?

Answer:
Yes, administration continues. A trustee who becomes incapable can be replaced under TA 1925 s 36(1) on grounds of incapacity. The continuing trustees (or a person nominated in the instrument) should appoint a replacement. The trust itself remains valid throughout.

Number of Trustees

The law sets requirements regarding the minimum and maximum number of trustees, particularly when the trust involves land. These rules ensure proper administration, safeguard beneficiaries, and facilitate overreaching on dispositions of land.

Minimum Number

Trusts of personalty can have a single trustee in law, although appointing at least two trustees is often advisable to ensure oversight. For trusts involving land, a minimum of two individual trustees or one trust corporation is required to give a valid receipt for capital money arising on the disposition of land (e.g., sale proceeds). This is essential for overreaching beneficial interests under the trust.

Key Term: Overreaching
A process in land law where the purchaser of a legal estate takes it free from certain equitable interests under a trust, provided the purchase money is paid to at least two trustees or a trust corporation.

Key points on the “two-trustee rule”:

• It applies to capital money arising on disposition of land; income payments can be made by a sole trustee.
• Payment to fewer than two individual trustees (or to a sole individual trustee) will not overreach beneficiaries’ equitable interests; a purchaser takes subject to those interests unless payment is made to a trust corporation or a second trustee is appointed for the transaction.
• A trust corporation acting alone can give a valid receipt.

Maximum Number

For trusts involving land, the maximum number of trustees is limited to four (Trustee Act 1925, s 34(2)). If a settlor attempts to appoint more than four trustees for a trust of land, only the first four named in the trust instrument who are able and willing to act become the trustees. This limit reflects the rule that the legal estate in land can vest in no more than four individuals, who hold as joint tenants in law.

There is no statutory maximum number of trustees for trusts of pure personalty (property other than land), although appointing a very large number can be impractical and may hamper efficient decision-making.

Revision Tip

Remember the “two-trustee rule” for land dispositions. If a sole individual trustee holds land on trust, they cannot give a valid receipt for capital money on its sale. A second trustee must be appointed for overreaching to occur. A trust corporation acting alone can give a valid receipt.

Exam Warning

Be alert to scenarios involving the sale of land held in trust. If only one individual trustee is acting, identify the need for a second trustee to be appointed to receive the purchase money for overreaching to occur. Note that this rule applies to capital money; a sole trustee can deal with income arising from land.

Practical Mechanisms to Address Ineligibility or Incapacity

Although a detailed analysis of appointment, retirement, and removal is beyond the scope of this subtopic, you should be aware of the principal statutory mechanisms that ensure a trust is administered even if a trustee is ineligible, unfit, or later becomes incapable:

• Trustee Act 1925 s 36(1): Replacement where a trustee is dead, remains outside the UK for more than 12 months, desires to be discharged, refuses to act, is unfit to act, incapable of acting, or is a minor.
• Trustee Act 1925 s 41: Court appointment of new trustees where expedient and otherwise difficult or impracticable to appoint.
• Trustee Act 1925 s 40: Automatic vesting of trust property by deed in continuing and new trustees.
• Trusts of Land and Appointment of Trustees Act 1996 s 19: In certain circumstances, beneficiaries of full age and capacity who, taken together, are absolutely entitled may direct a trustee to retire and/or direct the appointment of a new trustee (subject to statutory conditions).

These powers preserve continuity of trust administration and mitigate the consequences of an invalid appointment or later incapacity.

Key Point Checklist

This article has covered the following key knowledge points:

• Trustees must generally be adults (18+) and possess mental capacity; minors cannot act and their appointment is void.
• Corporations can act as trustees if permitted by their constitution; a trust corporation can act alone and give a valid receipt for capital money arising on a disposition of land.
• Undischarged bankruptcy, certain criminal convictions, incapacity, prolonged absence from the UK, refusal to act, or unfitness can justify replacement under statutory powers; automatic disqualifications apply to charity and pension trustees.
• A trust of land generally requires a minimum of two individual trustees or one trust corporation to give a valid receipt for capital money (overreaching under s 27 LPA 1925).
• The maximum number of trustees for a trust of land is four (TA 1925 s 34(2)).
• Statutory mechanisms (TA 1925 ss 36, 41; TLATA 1996 s 19; TA 1925 s 40) provide practical routes to replace ineligible or incapable trustees and to vest trust property in new trustees.

Key Terms and Concepts

• Minor
• Corporation
• Trust Corporation
• Overreaching