A trustee owes a duty of honesty, integrity, loyalty and good faith to the beneficiaries of the Trust. They are required to act in the best interests of the trust and should they fail to do so are at risk of an application for removal and the threat of adverse costs consequences.
There are a variety of ways to seek the removal of a trustee depending upon the circumstances of the case. Broadly these are as follows:
- Exercise of an express power within the trust deed.
- Exercise of the power within Section 36 of the Trustee Act 1925.
- Application of the Court’s power under Section 41 of the Trustee Act 1925.
- Exercise of the Court’s inherent jurisdiction.
- Compulsory retirement following a beneficiary’s direction under Section 19 of the Trusts of Land and Appointment of Trustees Act 1996.
- Replacement of trustees who lack mental capacity following a beneficiary’s direction under Section 20 of the Trusts of Land and Appointment of Trustees Act 1996.
The starting point
The first step should always be to consider the terms of the trust deed. It may be that the trust deed confirms who has power to appoint, substitute and remove trustees and how this is to be done.
If there are no such provisions within the trust deed or the express powers are limited, one of the methods set out below may be appropriate.
Section 36 of the Trustee Act 1925 (“TA 1925)
It is not uncommon for a Trust Deed to be silent regarding powers of removal. Even if the Trust Deed does contain express powers of removal it may still be possible and preferable to rely on Section 36 of the TA 1925.
What is the effect of a Section 36 replacement?
Section 36 creates a power to appoint a trustee to replace a trustee, rather than purely removing the offending trustee.
The circumstances where Section 36 can be used are limited to where the trustee:
- Is dead;
- Remains outside of the United Kingdom for more than 12 months;
- Desires to be discharged as trustee;
- Refuses to act;
- Is unfit or incapable of acting;
- Is under 18 years of age.
The power may be invoked by those expressly nominated in the trust deed with power to appoint new trustees or if there is no such person (and no other person is willing and able to act) then by the surviving or continuing trustees for the time being or their personal representatives.
The power must be exercised in writing and is usually done by way of a deed as this allows automatic vesting of property under Section 40(1) of the TA 1925.
Removal by the Court – Section 41 of the Trustee Act 1925
This will be the appropriate method where:
- It is expedient to appoint a new trustee or trustees; and
- It is inexpedient, difficult, or impractical to do so without the assistance of the Court.
The section is intended to apply where:
- The trustee lacks capacity to exercise their functions;
- The trustee is bankrupt;
- The trustee is a corporation which is in liquidation or has been dissolved.
Under this section the Court may appoint a new trustee or trustees in substitution for or in addition to existing trustees. The Court is also able to appoint a new trustee where there is no existing trustee.
A claim under this section can only be made by a trustee or beneficiary of the trust and is therefore limited in its application.
If an urgent removal is required then the Court’s inherent jurisdiction, as opposed to Section 41, must be exercised. Additionally, a claim under Section 41 will not be appropriate where there is a factual dispute. Again, in those circumstances it will be necessary to invoke the Court’s inherent jurisdiction.
The Inherent Jurisdiction of the Court
When the Court is asked to invoke its inherent jurisdiction the focus of the Court’s attention will be the welfare of the beneficiaries. Additionally, the Court will have regard to protecting trust property, the efficient and satisfactory execution of the trusts and the faithful and sound exercise of the trustees’ powers.
The Court will take into account the fact that the settlor chose the trustees.
General Principles regarding the exercise of the Court’s inherent discretion:
- With regards to a discretionary trust the Court must consider the interests of all of the potential beneficiaries and whether if the trustee remains in office the trust can be properly administered.
- Where a party establishes a good arguable case as to the conduct of one or more of the trustees this may be sufficient for a removal and where dishonesty is established this will generally result in removal.
- An uncomfortable relationship between the trustees and beneficiaries, or feelings of mistrust on the part of the beneficiaries are not, on their own, enough to justify a removal if it is still possible for the trust to be efficiently administered. It would need to be established that the breakdown in relations is likely to prevent the proper administration of the trust in order to justify a removal.
- If a trustee is in such financial difficulty that they would be subjected to a particularly strong temptation to misuse the trust funds then the Court may remove them from their office. However, if a trustee has gone bankrupt through no moral fault of their own and is no longer in financial difficulty then the Court may allow them to remain.
Section 19 of the Trusts of Land and Appointment of Trustees Act 1996 – Compulsory Retirement
This section allows beneficiaries who are together absolutely entitled under a trust, to give a written declaration to the trustees to retire from the trust and to appoint by writing a new trustee or trustees.
Section 19 applies in limited circumstances and beneficiaries can give such a direction only where:
- There is no person nominated to appointed new trustees in the trust deed;
- The beneficiaries are of full age and capacity and (taken together) absolutely entitled to the property subject to the trust.
It is crucial to check that the trust deed does not exclude the operation of Section 19.
If a trustee receives a valid direction under Section 19, he/she must execute a deed declaring their retirement as long as:
- Reasonable arrangements have been put in place for the protection of their own rights in respect of the trust.
- There will be either a trust corporation or two trustees in place following their retirement.
- Either another trustee is to be appointed on their retirement or the continuing trustees’ consent to their retirement.
Replacement due to Mental Incapacity – Section 20 of Trusts of Land and Appointment of Trustees Act 1996
Under Section 20 of TLATA 1996 beneficiaries are able to give written direction for the replacement of a trustee who lacks mental capacity by appointing a specified person in writing.
All of the beneficiaries must be of full age and capacity and together absolutely entitled to the trust property. Again, it is imperative to check that the power is not excluded within the trust deed.
It is clear from the above that the best method for seeking to remove a trustee requires careful consideration of the circumstances.
If you are a trustee threatened with proceedings for removal or a beneficiary with concerns that a trust is being improperly managed then please contact us on 01926 880 798 for an initial no obligation conversation.