Chapter 10: Trustees

Question 1

1. Introduction

Answer 1

The role of trustee is fundamental to the existence of a trust. The role will vary depending on the nature of the trust. However, the role of the trustee, at its core, is always to hold property for the benefit of others. This chapter briefly introduces the role of trustee before going on to consider the rules relating to appointment, removal and retirement of trustees

Question 2

1.1 Role of the trustee

Answer 2

As we saw in the introductory chapter, trustees will usually be the legal owners of the trust property. They have all the rights and powers of the legal owner but must exercise those rights for the benefit of the beneficiary. They owe obligations to the beneficiary, which can be enforced personally against the trustee.

Question 3

1.1.1 Voluntary role

Answer 3

The obligations of a trustee are onerous, therefore as a general principle no-one is required to accept the office of trustee. So, for example, just because a person is named as trustee in a will does not mean that they are required to take on that responsibility. They can refuse (often described as ‘disclaiming’ the position). It is a key principle of trust law that equity will not allow a trust to fail for want of a trustee so an alternative trustee will be appointed instead. The process
for appointing an alternative trustee is considered in detail later in this chapter.

Question 4

1.1.2 Remuneration of trustees

Answer 4

As the role of trustee is a voluntary position it is traditionally unpaid. So, in the absence of an expressly granted right to remuneration, trustees take on the responsibility of their role for no remuneration (although they are able to recover expenses (s 31 TA 2000)).
Professional trustees are, however, entitled to reasonable remuneration for their services (s 29 2000). As we will see in the chapter on ‘Trustee powers and duties’, they are held to a higher
standard of care than lay trustees.

Question 5

1.1.3 Joint office

Answer 5

It is good practice for trusts to have more than one trustee. Where there are multiple trustees, they must act together. All trustees should take an active role in the trust and failure to do so may result in them being liable for breach of trust. Where there has been a breach of trust, the trustees who are found to have committed a breach will be jointly and severally liable. Breach of trust is considered in detail in the chapter on ‘Liability of trustees’.

Question 6

1.2 Trustee obligations

Answer 6

The obligations of trustees must be determined on an individual basis but it is possible to identify some broad categories of trust and comment on the core role of the trustee.

Question 7

1.2.1 Express trusts

Answer 7

There are many different types of express trust, under which the obligations of trustees vary
significantly. What they have in common is that the trust has been expressly created, meaning an obligation has been intentionally imposed upon the trustee.

Question 8

Irreducible core of trusteeship

Answer 8

Although the settlor of an express trust has significant discretion as to the precise duties of a trustee, it is not possible to have a trust in which the trustees have no enforceable obligations at all. For the trust mechanism to work, there must be an obligation component.
A general duty to act honestly and in good faith, for the benefit of the beneficiaries, is common to
all trusts. This is often described as the ‘irreducible core’ of trustee duties and is fundamental to the concept of a trust.
We can break this category down further, considering how the role of trustee varies depending on the nature and purpose of the trust.

Question 9

Testamentary and other family trusts

Answer 9

Trusts are often set up in a will or for other family purposes. The trustee’s main role will be to comply with the terms of the trust, ensuring that the right payments are made to the right people
at the right time. Sometimes these trusts will only last a short period of time, as once the trustee has distributed the
entire trust fund, the trust comes to an end. In other cases, the trust will need to last for a longer period of time.

Question 10

Testamentary and other family trusts

Answer 10

A good example is a trust which has minor beneficiaries, which may well need to stay in play for
many years. In such cases, the trustees will have more active management obligations. They will need to safeguard and invest the trust fund. These obligations are considered in detail in the chapter on ‘Trustee powers and duties’. The trustees of such trusts will generally be lay trustees, meaning they act voluntarily and are not paid.

Question 11

Trusts for commercial purposes

Answer 11

There are many different commercial reasons for setting up a trust, meaning the role of trustee can vary significantly. It may involve minimal input from the trustee or may involve complex
investment of the trust fund, such as with pension trusts and other investment funds. Such trusts are likely to have extensive rules relating to the administration of the trust. They will
often have professional trustees.
Unlike lay trustees, they are paid to perform their role. Because of the payment, and their greater expertise, professional trustees will be held to a much higher standard of care than lay trustees. The duties to which trustee are subject when investing trust property are considered in detail in the chapter on ‘Trustee powers and duties’.

Question 12

Charitable purpose trusts

Answer 12

Charity trustees have extensive obligations, many of which are specifically prescribed by statute.
The extent to which the trustees are involved in the active, day-to-day management of the charity will depend on the size of the charity. Small charities will usually be managed by the trustees themselves while larger charities will have employees.

Question 13

Charitable purpose trusts

Answer 13

In such cases, the role of trustees is more strategic than operational. They will be responsible for establishing and overseeing the structures put in place to ensure the charity operates in accordance with the terms of the trust and complies with charity law. Charity trustees are often lay trustees but will be selected based on their particular skills and experience. Again, this is relevant when considering the standard of care to which they are held.

Question 14

Bare trusts

Answer 14

Bare trusts are not a completely separate category of trust. You can find examples of bare trusts in both the family and commercial context. A bare trust is a trust in which the trustee has very limited obligations. They simply hold the trust property for beneficiaries with fully vested interests.

Question 15

Adult beneficiaries

Answer 15

Adult beneficiaries of a bare trust will have Saunders v Vautier rights and can collapse the trust whenever they wish. Minor beneficiaries of a bare trust will gain this right once they turn 18. In general, the trustee of a bare trust will simply have to distribute the capital when they are required to and distribute or accumulate the income as appropriate in the meantime. The
dispositive duties of trustees are considered in detail in the chapter on ‘Trustee powers and duties’.

Question 16

1.2.2 Trusts arising by operation of law

Resulting and constructive trusts

Answer 16

Unlike express trusts, resulting and constructive trusts are imposed by law. They do not result from an express intention to impose an obligation upon the trustee (and may arise even if they have expressed a contrary intention). They arise to correct a wrong or unfairness and do not impose
the same sorts of obligations on trustees. Rather, they create a bare trust.

Question 17

Resulting and constructive trusts

Answer 17

The trustees of a resulting or constructive trust have even more limited obligations than those of
an expressly created bare trust. If they are aware of the trust, they must preserve the trust property (rather than treating it as their own) but they do not have positive obligations in the same way that the trustees of an express trust do.

Question 18

Statutory trusts

Answer 18

Trusts can also arise in circumstances prescribed by statute. Some statutory trusts may impose substantive obligations on the trustees (such as trusts arising as a result of the application of the intestacy rules) while others impose extremely limited obligations upon them (such as a trust that arises because legal title to land is jointly held).

Question 19

2 Appointment of trustees

2.1 Introduction

Answer 19

It is a fundamental requirement of a trust that it must have a trustee. In the case of express trusts, the trustee(s) will usually be appointed by the settlor when the trust is first established. However, this does not necessarily mean that the trustee will remain the same while the trust is in operation. The trustees of a trust can, and often do, change over time. In this section we consider how trustees are appointed.

Question 20

2.2 Who can be a trustee?

Answer 20

In general, any person except a minor may be a trustee: s 20 LPA 1925. There are, however, practical restrictions to consider such as whether the appointment gives rise to any conflicts of
interest and whether the intended trustee is fit to act. For example, it would be inappropriate to appoint a bankrupt person as a trustee. The trust instrument may contain further rules on who may act as trustee. There are also some
statutory restrictions applicable to certain specialist types of trust (eg pension trusts and charitable trusts). These are outside the scope of this Workbook.

Question 21

2.3 How many trustees to appoint

Answer 21

There are no rules prescribing a minimum or maximum number of trustees but there is an exception for trusts of land, because legal title to land may only be held by a maximum of four persons. It is also necessary for such trusts to have a minimum of two trustees, in order to give good receipt. It is good practice to appoint more than one trustee but, as trustees must generally act unanimously, it is preferable to keep numbers relatively low to avoid administrative difficulties.
As we will see later in this chapter, this principle is reflected in the statutory powers to appoint new trustees (which cannot be used to increase the number of trustees beyond four). The trust instrument may contain further rules about the minimum and maximum number of trustees.

Question 22

2.4 Process for appointing trustees of a new inter vivos trust

Answer 22

Trustees are usually appointed by the settlor when they establish a trust. In the case of an inter vivos (lifetime) trust, the settlor has two broad choices:
(a) A self-declaration of trust
(b) A transfer on trust

Question 23

2.4.1 Self-declaration of trust

Answer 23

With a self-declaration of trust, the settlor will become trustee as long as all the key requirements for declaration of an enforceable trust are met.

Question 24

2.4.2 Transfer on trust

Answer 24

In the case of a transfer on trust, the trust is constituted once the settlor transfers legal title to the
trustee. As trusteeship is a voluntary office, the trustee can decline the role. The settlor should therefore only transfer legal title to the intended trustee once they have confirmed that the trustee is willing to act. However, if the settlor does transfer to an intended trustee who then disclaims the trusteeship, the intended trustee will hold the property on a bare trust for the intended beneficiaries pending the
appointment of new trustees.

Question 25

But who appoints the trustee in such cases?

Answer 25

(a) The trust instrument may contain an express power to appoint trustees.
(b) If there is no express power, or it cannot be exercised, the disclaiming trustee has the power under ss 36(1) and 36(8) Trustee Act 1925 (‘TA 1925’) to appoint their own replacement.

Question 26

(c) If the disclaiming trustee does not wish to exercise this power:

Answer 26

• Beneficiaries with Saunders v Vautier rights have a power to appoint trustees under s 19 Trusts of Land and Appointment of Trustees Act 1996 (‘TLATA’).
• As a last resort, the court has a statutory power to appoint trustees under s 41 TA 1925.

Question 27

Statutory provisions

Answer 27

These statutory provisions are covered in more detail later in this chapter as they can also be used in cases involving the appointment of replacement or additional trustees. You may wish to have copies of these statutory provisions in front of you when reading the remainder of this chapter.

Question 28

2.5 Process for appointing trustees of new testamentary trusts

Answer 28

In order to understand the following discussion, it is helpful to appreciate how testamentary trusts take effect:
(a) The testator names their executors in their will.
(b) If the executors are able and willing to act, they will take legal title to the testator’s entire estate. If they are not able and willing to act, administrators will be appointed instead.
(c) The personal representatives (ie the executors or administrators) then administer the estate.
Once they have paid any liabilities of the testator, they must distribute the property in accordance with the will. This includes ensuring that legal title is vested in the intended trustees of any trusts

Question 29

2.5 Process for appointing trustees of new testamentary trusts

Answer 29

(d) Sometimes the will provides that the personal representatives should also be the trustees of any trusts in their will. In such cases, they will now hold the legal title to the trust property in their capacity as trustees instead of as personal representatives.
(e) If the testator has named someone different as trustee, the personal representatives must transfer the property to them

Question 30

But what if the named trustee is unwilling or unable to act?

Answer 30

Although the testator may have named their intended trustees, we have already seen that trusteeship is a voluntary office and the named trustees may decline the role. It may also be impossible for the named trustees to act. The most obvious example is the situation where the trustees predecease the testator. In such cases, the personal representatives will temporarily hold
the property on trust until the new trustees are appointed.

Question 31

2.5.1 Who has the power to appoint replacement trustees?

Answer 31

The answer to this question is similar to the position for inter vivos trusts. It is necessary to look for an express power first, before considering s 36 TA 1925, s 19 TLATA (appointment by beneficiaries)
and s 41 TA 1925 (appointment by the court). It is worth looking in a little more detail at s 36 TA 1925 at this stage. The position is slightly more complicated than for inter vivos trusts as it depends on the reason why the named trustee is not taking up the role

Question 32

2.5.1 Who has the power to appoint replacement trustees?

Answer 32

If the testator named their executors as trustees but the named executors want to renounce their position (ie not become executors), they have the power to appoint new trustees in their
place (s 36(5)).

Question 33

2.5.1 Who has the power to appoint replacement trustees?

Answer 33

If the testator named a third party as a trustee, but that person has predeceased the testator or is unable to act, the personal representatives will temporarily become trustees. They then
have the power under s 36(1) to appoint permanent trustees.

Question 34

2.5.1 Who has the power to appoint replacement trustees?

Answer 34

If the testator named a third party as a trustee, but that person wishes to disclaim the trusteeship, s 36(8) gives the disclaiming trustee the power to appoint their own replacement. If the disclaiming trustee does not wish to exercise this power, the personal representatives also
have a power to appoint permanent trustees, in the same way as in cases involving dead or incapable trustees.

This section is considered in further detail below as it can also be used to appoint replacement or additional trustees of a subsisting trust.

Question 35

2.5.2 Testamentary gifts to minors

Answer 35

There is another situation in which the personal representatives of an estate may need to appoint trustees. Where a legacy is given absolutely to a minor, they cannot pay it to the beneficiary until they reach 18 because a minor cannot give valid receipt. (A married minor can give receipt for income but that is outside the scope of this Workbook.)

Question 36

2.5.2 Testamentary gifts to minors

Answer 36

The personal representatives therefore need to hold the relevant assets on trust for the minor, investing these assets in accordance with their statutory powers of investment and utilising powers
of maintenance and advancement until the minor attains 18. However, under s 42 Administration of Estates Act 1925, the personal representatives could instead appoint trustees (usually the minor’s parent/guardian) and give the legacy to those trustees rather than retaining it. Under this section, it is necessary to appoint at least two (but no more than four) trustees or a trust corporation.

Question 37

2.6 Process for appointing new trustees of a subsisting trust

Answer 37

It is sometimes necessary or desirable to change the trustees of a subsisting trust. This might entail the replacement of an existing trustee or the appointment of additional trustees. Such changes may be initiated by the trustees themselves or by the beneficiaries. Once the settlor has created the trust, their involvement ceases and they do not automatically
have the right to name replacement trustees (and in the case of testamentary trusts this would of course be impossible). Instead, replacement trustees may be appointed in one of the following ways

Question 38

2.6 Process for appointing new trustees of a subsisting trust

Answer 38

(a) By anyone given an express power to appoint trustees by the trust instrument
(b) By current or outgoing trustees, using the statutory powers in s 36 TA 1925 to appoint trustees
(c) By beneficiaries, using the statutory powers in exercising their Saunders v Vautier rights
(d) By the Charity Commission, in the case of charitable trusts
(e) By the court, as a last resort

Question 39

2.6.1 Express powers to appoint trustees

Answer 39

A trust instrument may contain powers to appoint new trustees. Sometimes a settlor will reserve such a power for themselves, giving them a degree of continued control over the trust.

Question 40

Example: Express power to appoint trustees

Answer 40

‘The Settlor and, after the Settlor’s death, the Settlor’s wife has the power to appoint trustees of this trust given by section 36 of the Trustee Act 1925.’

Question 41

2.6.2 Statutory power to appoint trustees (s 36 TA 1925)

Answer 41

As we saw above (in the context of appointing the trustees of new trusts) there is a statutory power to appoint trustees in s 36 TA 1925.
The power can be used for the following purposes:
(a) To replace existing trustees (s 36(1))
(b) To appoint additional trustees (s 36(6))

Question 42

2.6.3 Replacement of existing trustees (s 36(1) TA 1925)

Answer 42

If a trustee needs to be replaced, s 36(1) TA 25 provides that the power to appoint the new trustee(s) lies with:
* The person named for this purpose by the will or trust (if any); or
* If there is no such person able and willing to act, the continuing trusteesortrustee (or the
personal representative of the last surviving trustee). This power can be exercised in the following cases:
(a) On the death of a trustee
(b) If a trustee is abroad for over a year
(c) If an appointed trustee is a minor or otherwise lacks capacity to act
(d) If a trustee wishes to retire, refuses to act or is unfit to act. The power to appoint trustees under this section must be exercised in writing.

Question 43

Application to deceased trustees and dissolved corporate trustees

Answer 43

Under s 36(2), trustees that have been removed from their role are treated in the same way as trustees who have died. Similarly, corporate trustees that have been dissolved are deemed to be
incapable of acting (s 36(3)).

Under s 36(8), references to the death of a trustee in s 36(1) include the situation where the trustees of a testamentary trust predecease the testator. As we saw above, this means that the personal representatives can appoint alternative trustees.

Question 44

Application to disclaiming trustees

Answer 44

Section 36 (8) also clarifies that references to a continuing trustee include a ‘refusing or retiring
trustee’ if they are ‘willing to act in the execution of the provisions of this section’. As discussed above, this means that the named trustees (of either a testamentary or inter vivos trust) who
decide not to accept the role of trustee may appoint the person to take their place.

Question 45

2.6.4 Appointment of additional trustees (s 36(6) TA 1925)

Answer 45

If an additional trustee is to be appointed, and none of the current trustees are being replaced, s
36(6) TA 1925 provides that the power to appoint the new trustee(s) (in writing) lies with:
* The person named for this purpose by the will or trust deed; or
* If there is no such person able and willing to act, the current trustee(s).
This power cannot be used to increase the number of trustees beyond four (unless there is an express clause permitting this in the trust instrument).
Again, the power to appoint trustees under this section must be exercised in writing.

Question 46

2.6.5 Appointment by beneficiaries (s 19 TLATA)

Answer 46

If all the beneficiaries of a trust have Saunders v Vautier rights, they can use those rights to change the trustees of the trust. Traditionally, Saunders v Vautier only gives the beneficiaries the power to collapse the trust. Therefore, if they wanted to change the trustees, the beneficiaries would need to exercise their Saunders v Vautier rights to collapse the trust and then declare a new trust with new trustees. This
is not ideal from an administrative perspective and may have tax consequences

Question 47

2.6.5 Appointment by beneficiaries (s 19 TLATA)

Answer 47

There is therefore now also a statutory power in s 19 TLATA which gives beneficiaries with Saunders v Vautier rights the power to direct the trustees to appoint a new trustee. This power must be exercised in writing and cannot be exercised in cases where the trust instrument contains an express power to appoint trustees.

Question 48

2.6.6 Appointment by the court (s 41(1) TA 1925)

Answer 48

It is a core principle that equity will not allow a trust to fail for want of a trustee.
For this reason, if a trust would be without a trustee because there is nobody authorised who is able and willing to make the appointment, the court can make the appointment instead. The court’s power to do this is found in s 41(1) TA 1925.

Question 49

The power in s 41 is extended to the Charity Commission in the case of charitable trusts: s 69(1)(b)
Charities Act 2011.

Answer 49

When exercising its statutory power, the court will consider the following principles:
(a) The court should consider the wishes of the settlor or testator (if such wishes are expressed or evidenced in the trust instrument).
(b) The court should not appoint a trustee where there is a dispute between the beneficiaries as to whether that person would be appropriate.
(c) The court should consider whether the appointment will promote or impede the trust administration. This means the court should take into account the views of the existing trustees, but must consider whether those views are reasonable.

Question 50

2.6.6 Appointment by the court (s 41(1) TA 1925)

Answer 50

If appointing a trust corporation, the court has the power to authorise the payment of remuneration to that corporation (s 42 TA 1925). Trustees appointed by the court have the same powers as if they were the originally appointed trustees (s 43 TA 1925).
If the court cannot find a suitable willing trustee, it may as a last resort appoint the Public Trustee to administer the trust. The Public Trustee was created by the Public Trustee Act 1906 to provide a
mechanism for enforcing trusts where no other person is willing to take on the role. The Public Trustee is entitled to charge for its services.

Question 51

2.7 Summary

Answer 51

• Trustees are usually appointed by a settlor when they establish a lifetime trust or a testator when they create a trust by will.
• If a trustee is unable or unwilling to act, it may be necessary to appoint a new trustee, either at the commencement of the trust or at a later date.
• The trust instrument may contain powers to appoint trustees.

Question 52

2.7 Summary

Answer 52

• There is a general statutory power to replace trustees in recognised circumstances.
• This statutory power is exercisable by the persons who have express powers to appoint trustees or, if there are no such powers, by the existing trustees. This includes any disclaiming trustees.
• The court also has the power to replace and appoint trustees, as does the Charity Commission where the trust is charitable.
• Beneficiaries with Saunders v Vautier rights have a statutory power to appoint new trustees.

Question 53

3. Removal of trustees

Answer 53

Similar rules apply to the removal of trustees as to their appointment:

(a) The trust instrument may contain rules dealing with removal of trustees.
(b) The general statutory power to appoint trustees also effectively extends to removing trustees in the circumstances where it is considered necessary to replace them.
(c) The court also has both statutory and common law powers to remove trustees.
(d) The Charity Commission also has the power to remove charity trustees.

Question 54

3.1 Express powers to remove trustees

Answer 54

Just as a trust instrument may contain powers to appoint trustees, it may also provide powers to remove trustees.
A settlor may choose to reserve such a power to ensure a degree of continuing control over the trust.

Question 55

3.2 Removal by using the statutory power of replacement (s 36 TA 1925)

Answer 55

As we have already seen, the general statutory power in s 36 TA 1925 provides for the replacement of trustees in recognised circumstances. The effect of this section is to give the person with the power to appoint trustees the ability to
remove a trustee and appoint a new trustee in their place.

Question 56

3.3 Removal by the court or Charity Commission

Answer 56

The court’s statutory power to appoint trustees under s 41 TA 1925 also extends to the removal of trustees. In particular, this section envisages the court exercising a power to replace trustees in
cases where the trustee is bankrupt, lacks capacity or is a company which is in liquidation or has been dissolved.
The same power is exercisable by the Charity Commission where the trust is charitable. Separately, the court also has an inherent jurisdiction to remove trustees in cases where it is concluded that it is not appropriate for the trustee to remain in office (eg where they act dishonestly).

Question 57

4 Retirement of trustees

4.1 Voluntary retirement

Answer 57

A trustee may retire from a trust and be discharged from their obligations without being replaced provided the following conditions are met the following (s 39(1) TA 1925):
* The trustee signs a deed declaring an intention to retire.
* After the trustee retires at least two trustees (or a trust corporation) remain.
* Written consent by deed of the co-trustees is obtained.
* Any action required to vest the trust property in the remaining trustees is carried out.

Question 58

4.2 Retirement at the direction of the beneficiaries

Answer 58

In addition to having a power under s 19 TLATA to appoint trustees, beneficiaries with Saunders v Vautier rights also have the power to compel a trustee to retire from the trust. The direction must
be made in writing and requires the agreement of all beneficiaries. As with voluntary retirement, the power can only be exercised if, after the retirement of the trustee, there will remain at least two trustees or one trust corporation.