Learning Outcomes
This article outlines the essential criteria for determining who can act as a trustee in England and Wales. It covers the legal capacity required, common disqualifications, and specific rules regarding minors and corporations acting as trustees. For the SQE1 assessments, you will need to identify eligible individuals and entities capable of holding trusteeship and understand the implications of appointing someone who lacks capacity or is otherwise disqualified. This knowledge will enable you to apply the relevant legal principles to SQE1-style single best answer MCQs concerning trustee appointments.
SQE1 Syllabus
For SQE1, you are required to understand the fundamental requirements for appointing trustees. This includes recognising who possesses the necessary legal capacity and who is excluded from acting. Your understanding will be tested on your ability to apply these rules in practical scenarios.
As you work through this article, remember to pay particular attention in your revision to:
- the legal capacity required to be a trustee
- rules preventing minors from acting as trustees
- the ability of corporations to act as trustees
- the consequences of appointing an ineligible trustee
- the minimum and maximum number of trustees permitted, particularly concerning trusts of land.
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.
-
Which of the following individuals generally possesses the capacity to be appointed as a trustee?
- A 17-year-old student.
- An individual declared bankrupt who has not yet been discharged.
- A person lacking mental capacity to manage their own affairs.
- A 30-year-old solicitor of sound mind.
-
What is the minimum number of individual trustees required to give a valid receipt for the proceeds of sale of land held in trust?
- One
- Two
- Three
- Four
-
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.
-
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?
- One
- Two
- Three
- 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 and certain disqualifications significantly limit who can actually serve.
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.
- 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.
While there is no specific requirement for financial skills or business acumen for lay trustees (non-professional individuals), their actions are still measured against a standard of care, as will be discussed in relation to trustee duties.
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.
Key Term: Minor
In England and Wales, a person under the age of 18 years.
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 appointment fails entirely, and a resulting trust may arise, or the court may need to appoint suitable trustees.
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).
Key Term: Corporation
A legal entity, such as a company, that is separate from its owners or members.
Many banks and financial institutions have subsidiary companies specifically set up to act as professional trustees. These are often referred to as trust corporations.
Key Term: Trust Corporation
A corporation appointed to act as a custodian trustee or trustee, often specialising in trust administration. Certain specific definitions apply, for example, under the Trustee Act 1925 and the Law of Property Act 1925.
Trust corporations offer advantages such as continuity (they do not die or become incapacitated) and professional proficiency. They can also act as a sole trustee even where trust property includes land and capital money arises (see section on Number of Trustees below).
Disqualifications
Certain circumstances can disqualify an individual from acting as a trustee, even if they are an adult of sound mind.
- Bankruptcy: An individual who is currently bankrupt (an undischarged bankrupt) is generally considered unfit to act as a trustee due to the potential risks to the trust property and conflicts of interest. While not an automatic disqualification for all private trusts, their appointment is often undesirable and can be grounds for removal. Specific rules prevent undischarged bankrupts from being trustees of charitable or pension trusts.
- Criminal Convictions: Certain convictions, particularly those involving dishonesty, may render a person unsuitable to act as a trustee, although this is not an automatic statutory bar for all private trusts.
- Lack of Mental Capacity: As mentioned, a person who lacks mental capacity under the Mental Capacity Act 2005 cannot act as a trustee. If an existing trustee loses capacity, they must be replaced.
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, particularly given the financial responsibilities involved. While his appointment might not be automatically void for a private trust, it is highly inadvisable and could be challenged. Ahmed should be advised to select different, eligible individuals.
Number of Trustees
The law sets requirements regarding the minimum and maximum number of trustees, particularly when the trust involves land.
Minimum Number
While a trust of property other than land (personalty) can technically have a single trustee, it is generally advisable to appoint at least two trustees for better administration and safeguarding of assets.
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 from the disposition of land (e.g., sale proceeds). This is essential for the mechanism of 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.
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.
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.
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 the transaction to overreach the beneficiaries' interests properly. 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.
Key Point Checklist
This article has covered the following key knowledge points:
- Trustees must generally be adults (18+) and possess mental capacity.
- The appointment of a minor as a trustee is legally void.
- Corporations can act as trustees if permitted by their constitution; trust corporations are common.
- Undischarged bankruptcy may render an individual unfit to act as a trustee.
- A trust of land generally requires a minimum of two individual trustees or one trust corporation to give a valid receipt for capital money.
- The maximum number of trustees for a trust of land is four.
Key Terms and Concepts
- Minor
- Corporation
- Trust Corporation
- Overreaching
