Trustees Flashcards
Role of the Trustee
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.
1.1.1 Voluntary role
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.
1.1.2 Remuneration of trustees
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.
1.1.3 Joint office
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
Bare trusts
Bare trusts are not a completely separate category of trust. You can find examples of bare trusts
in both the family and commercial context.
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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.
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’.
Who can be a trustee?
n 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.
How many trustees to appoint
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).
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The trust instrument may contain further rules about the minimum and maximum number of
trustees.
Process for appointing trustees of a new inter vivos trust
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
2.4.1 Self-declaration of trust
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.
2.4.2 Transfer on trust
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.
But who appoints the trustee in such cases?
(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.
(c) If the disclaiming trustee does not wish to exercise this power:
- 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.
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.
Process for appointing trustees of new testamentary trusts
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.
(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.
But what if the named trustee is unwilling or unable to act?
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
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trustees predecease the testator. In such cases, the personal representatives will temporarily hold
the property on trust until the new trustees are appointed
Who has the power to appoint replacement trustees?
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:
* 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)).
* 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.
* 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.
Testamentary gifts to minors
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.)
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.
Process for appointing new trustees of a subsisting trust
(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
Replacement of existing trustees (s 36(1) TA 1925)
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.
Application to deceased trustees and dissolved corporate trustees
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.
Application to disclaiming trustees
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.
Appointment of additional trustees (s 36(6) TA 1925)
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.
Appointment by beneficiaries (s 19 TLATA)
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.
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.
Appointment by the court (s 41(1) TA 1925)
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.
The power in s 41 is extended to the Charity Commission in the case of charitable trusts: s 69(1)(b)
Charities Act 2011.
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.
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.
Removal of trustees
(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.
Retirement of trustees
Voluntary retirement
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.
4.2 Retirement at the direction of the beneficiaries
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.
