29 May 2019 | Firm news | Article by Roman Kubiak TEP

How to remove a trustee

Our recent article looked at the options available when seeking to remove an executor. Following on from that, it seems useful to consider the options available and circumstances in which you can remove a trustee.

The position of trustee is one which comes with significant responsibility. Trustees obligations and duties are set out in both the trust deed and also in law. Trustees should not use their powers unreasonably and, at all times, should act in accordance with the terms of the trust deed. It goes without saying that a trustee must act in the best interests of the trust.

If there are concerns in relation to a trustee, there are a number of ways in which a trustee may be removed. Much will depend upon the terms of any trust instrument, the possible legal remedies employed and the events or actions which have caused a beneficiary or co-trustee to seek removal.

Of course, the fellow trustees or beneficiaries of the trust can request that a trustee voluntarily agree to their removal. Provided there are enough remaining trustees, then the trustee can retire or alternatively, appoint someone else in their place before stepping down.

However, if a trustee refuses to step down voluntarily, then what other options are available?

The trust instrument

The starting point is to review the trust document itself. The trust instrument is the document which creates or sets out the terms of the trust. It can be something as straightforward as a will which leaves assets to minor children, a settlement deed or declaration of trust comprising many pages.

Whatever it is, there is a pretty good chance that it will set out, or refer to / amend legislation which sets out, the trustees’ powers and duties. It may also set out the person or persons who may or may not appoint, remove or substitute trustees of the trust and how they can do that. The trust document will often contain an express power allowing the removal of trustees. Provided that the provisions of the trust deed are followed, there is little the outgoing trustee can do to object  to the process.

However, if the trust document is silent, or limits the power to appoint or remove trustees, it may then be necessary either to rely on legislation or the court’s inherent jurisdiction to seek the removal.

Legislation

Court action should be seen as very much the last resort. Trustees can be removed without the court’s intervention by their fellow trustees, if one or more of a number of conditions is met. These conditions are set out in s.36 Trustee Act 1925 which provides:

“(1) Where a trustee, either original or substituted, and whether appointed by a court or otherwise, is dead or remains out of the United Kingdom for more than twelve months, or desires to be discharged from all or any of the trusts or powers reposed in or conferred on him, or refuses or is unfit to act therein, or is incapable of acting therein, or is an infant, then, subject to the restrictions imposed by this Act on the number of trustees,—

(a) the person or persons nominated for the purpose of appointing new trustees by the instrument, if any, creating the trust; or

(b) if there is no such persons, or no such person able and willing to act, then the surviving or continuing trustees or trustee for the time being, or the personal representatives of the last surviving or continuing trustee;

may, by writing, appoint one or more other persons (whether or not being the persons exercising the power) to be a trustee or trustees in the place of the trustee so deceased, remaining out of the United Kingdom, desiring to be discharged, refusing, or being unfit or being incapable, or being an infant, as aforesaid.” (Emphases added)

Of course, some of the grounds are clearly far easier to show than others. It is easy to show that someone is dead, is an infant, has been outside of the UK for more than 12 months, or desires to be removed.

However, the other grounds can be more difficult to determine. Proving that a person is incapable of acting may, depending on the circumstances, not be entirely straightforward, for instance where it is suspected that a trustee lacks mental capacity. This is because capacity is time and issue specific; for example, a person may have capacity to marry but not to make a will. One way of determining such an issue will be by means of obtaining a report from a suitably qualified medical practitioner confirming whether or not, in their opinion, the trustee lacks the capacity to act as such and to understand the powers, duties and responsibilities necessary to act as a trustee.

One important and often overlooked provision in the legislation is found at s.36 (9) Trustee Act 1925. This states that where a trustee who lacks capacity is also a beneficiary of the trust then it is necessary to make an application for that person’s removal to the Court of Protection; the court which deals with matters of physical and mental welfare.

Determining whether or not a person is unfit to act can also prove tricky. Firstly, this can be very subjective. Secondly, in most cases the trustee who is accused of being unfit to act will almost certainly dispute that allegation.

Being ‘unfit’ depends on the circumstances of the case. Generally, a person who has been made bankrupt or convicted of a fraudulent offence will most likely be deemed to be unfit to act; as will a trustee guilty of a significant breach of trust or of acting in a way which causes a conflict between their personal position and their duty to the beneficiaries, known as their ‘fiduciary duty’. Even if a trustee is removed under s.36 Trustee Act 1925, it is entirely possible that they could challenge such a decision by way of court action.

Further, as is clear from s.36 Trustee Act 1925, this remedy is not automatically available to beneficiaries unless they are also trustees or they have power to remove trustees under the trust instrument. In that case, one further possibility for beneficiaries is found in s.19 Trusts of Land and Appointment of Trustees Act 1996 which provides as follows:

“(1) This section applies in the case of a trust where—

(a) there is no person nominated for the purpose of appointing new trustees by the instrument, if any, creating the trust, and

(b) the beneficiaries under the trust are of full age and capacity and (taken together) are absolutely entitled to the property subject to the trust.

(2) The beneficiaries may give a direction or directions of either or both of the following descriptions—

(a) a written direction to a trustee or trustees to retire from the trust, and

(b) a written direction to the trustees or trustee for the time being (or, if there are none, to the personal representative of the last person who was a trustee) to appoint by writing to be a trustee or trustees the person or persons specified in the direction.” (emphases added)

Whilst at first glance this seems like a useful provision, there are a few stipulations which make it a little more difficult in practice to invoke than perhaps first envisaged.

Firstly, this power is only available where either the trust instrument does not provide for anyone to appoint new trustees or where s.19 Trusts of Land and Appointment of Trustees Act 1996 has not been specifically excluded in the trust instrument.

Secondly, it requires unanimity amongst the beneficiaries who must all be over 18, of sound mind and, together, absolutely entitled to the trust fund. As such, if there is one dissenting beneficiary or a beneficiary who lacks capacity or is under 18, the beneficiaries cannot take advantage of this section.

Court intervention

If the remedies discussed above are not available, then as a last resort, a court can be asked to remove a trustee.

The court can remove a trustee either by statutory power (under s.41 Trustee Act 1925) or under its inherent jurisdiction. s.41(1) Trustee Act 1925 provides:

“The court may, 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, make an order appointing a new trustee or new trustees either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee.

In particular and without prejudice to the generality of the foregoing provision, the court may make an order appointing a new trustee in substitution for a trustee who lacks capacity to exercise his functions as trustee, or is a bankrupt, or is a corporation which is in liquidation or has been dissolved.” 

Such an application can be made by a beneficiary or a trustee.

Assuming there is no other method open to a party to remove a trustee, the court may do so under s.41 Trustee Act 1925 where a trustee lacks capacity, is bankrupt or, if a corporation, in liquidation or has been dissolved.

Further, the first part essentially alludes to the court’s inherent jurisdiction to remove trustees and may include removing a trustee where they are acting in conflict or where the beneficiaries’ interests are likely to be prejudiced.

If seeking to remove a trustee under s.41 Trustee Act 1925, you should try to ensure you have a replacement or substitute trustee available and that trustee should file at court what is known as a ‘consent to act’ – a witness statement confirming the proposed replacement trustee’s agreement to act as a trustee. This should be filed along with a ‘fitness to act’ – a statement by somebody who knows the trustee and can vouch for their standing and suitability to act as a trustee.

Finally, the ‘catch all’ remedy available is by invoking the court’s inherent jurisdiction to remove a trustee.

Inherent jurisdiction

The court has an inherent jurisdiction to supervise and, if necessary, intervene in the administration of trusts (Schmidt v Rosewood Trust Ltd [2003] AC 79), including jurisdiction to remove trustees to protect the interests of the beneficiaries. Here, one must look to case law, also known as ‘common law’.

The principles for removing trustees are much the same as those for removing executors and administrators as both are fiduciary roles.

In short, the starting position is the judgment in the case of Letterstedt v Broers (1884) 9 App Cas 371 in which Lord Blackburn sitting in the South African court summarized the position:

“…if satisfied that the continuance of the trustee would prevent the trusts being properly executed, the trustee might be removed.  It must always be borne in mind that trustees exist for the benefit of those to whom the creator of the trust has given the trust estate”

… friction or hostility between trustees and the immediate possessor of the trust estate is not of itself a reason for the removal of the trustees.” 

“… If it appears clear that the continuance of the trustee would be detrimental to the execution of the trusts, even if for no other reason than that of human infirmity would prevent those beneficially interested, or those who act for them, from working in harmony with the trustee, and if there is no reason to the contrary from the intentions of the framer of the trust… it seems to their lordships that the court might think proper to remove him.”

More recently, the decision of Newey J in Brudenell-Bruce v Moore & Cotton [2014] EWHC 3679 (Ch),offered updated guidance as to the approach that the courts will take when asked to deal with contested applications seeking removal.

Whilst case law has evolved since 1884, the general principles remain good law; a testament to Lord Blackburn.

In short, when the court is considering exercising its jurisdiction to remove a trustee, it will be concerned with the extent to which the trust property is at risk, the ability of the trustee to administer the trust, the needs of the beneficiaries and the extent to which hostility between trustees causes the trust to be poorly administered.

Each case will be considered on its own facts applying the rules which have evolved. Clearly very serious breaches will almost inevitably result in a trustee being removed, whilst less minor breaches may not. The result may well have a direct impact on any costs sanctions which the court may choose to apply. It is, of course, vital to seek expert legal advice at an early stage.

Disclaimer: The information on the Hugh James website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. If you would like to ensure the commentary reflects current legislation, case law or best practice, please contact the blog author.

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