The removal of trustees who lack capacity
This article appears in the December 2013 issue of the STEP Journal and was written by Kelly Greig TEP, an Associate and Head of the Private Client Team at Trethowans, and William East, a Barrister at 5 Stone Buildings.
If it appears that a trustee has lost or is beginning to lose mental capacity and is no longer able to perform their duties as a trustee, the other trustees must consider how best to remove the incapacitated trustee (P). This can be achieved by the following methods (depending on the circumstances):
- by exercising an express power of removal contained in the trust deed;
- removal using the power contained in s36 of the Trustee Act 1925 (TA 1925) (either wholly out of court or with the consent of the Court of Protection);
- removal by the court under s41 of TA 1925.1
Removal under express powers
Although this is the logical place to start, it is rare for English trust instruments to provide an express power for removal and replacement of P. Even if this is the case, careful attention will need to be paid to the specific terms of the power. Under normal circumstances, the trustees should be advised to turn their attention to s36 TA 1925.
Removal under s36 TA 1925
Section 36(1) TA 1925 contains a power of removal and replacement of trustees who are ‘incapable of acting’. The power is given to:
- The person or persons nominated for the purpose of appointing new trustees by the instrument, if any, creating the trust (even if there is not often an express power of removal contained in a trust deed, there may more often be provisions entitling persons such as the settlor to appoint new trustees).
- If there is no such person, or no such person able and willing to act, then the power is given to the surviving or continuing trustees or trustee for the time being, or the personal representatives of the last surviving or continuing trustee.
‘Incapable of acting’ is not defined by TA 1925 but a trustee was removed under a forerunner of the section where she was, as a result of age and infirmity, ‘in such a condition that she [could not] act properly in his trust, and [was], in fact, incapable of acting’: see Re Lemann’s Trusts (1883) 22 Ch. D. 633. It is likely to be sufficient if the trustee lacks capacity within the meaning of s2 of the Mental Capacity Act 2005 (MCA 2005). Under this section, a person lacks capacity ‘in relation to a matter if at the material time he is unable to make a decision for himself in relation to the matter because of an impairment of, or a disturbance in the functioning of, the mind or brain.’
It is critical to note that questions of capacity both under the MCA 2005 and generally are issue-specific – in that whether a person has capacity in relation to a particular matter depends on whether he is able to perform the specific role required of him, not on some general notion of their capacity as a whole.
This approach is reinforced by s3 MCA 2005, which states that a person is unable to take a decision for himself if he is unable (a) to understand the information relevant to the decision, (b) to retain that information, (c) to use or weigh that information as part of the process of making the decision and (d) to communicate his decision (whether by talking, using sign language or any other means). We consider that the level of capacity required to act as a trustee is likely to be relatively high compared to the capacity required for other decisions (e.g. for a person to decide their place of residence). However, the level of capacity required to act is likely to depend on the complexity of the trust and the investment, administrative and dispositive decisions to be made in relation to it.
In order to exercise the s36 power, it is fundamental for the continuing trustees to establish a clear case that P lacks capacity. The continuing trustees would be wise to obtain and keep a copy of a mental capacity assessment from a qualified practitioner such as a GP or Consultant Psychiatrist. It is also worth reciting in the deed under which P is replaced that he has been replaced owing to his lack of capacity and that a medical report has been obtained confirming his condition.
When the trustee has a beneficial interest in the trust
However, the replacement of trustees under s36 TA 1925 is not always without complications. Section 36(9) states a trustee who has lost capacity may not be replaced using the s36 power where that trustee also has a beneficial interest in the trust property, unless leave to bring about the replacement has been given by the Court of Protection.2
This protracted process for applying is detailed in Practice Direction G to Part 9 of the Court of Protection Rules 2007, and includes an extensive list of suggested exhibits to accompany the application, including the trust document, conveyancing documents, details of the existing trustee(s) and independent witness statements confirming the suitability of the new trustee, to name but a few. It is not difficult to imagine a situation where an impatient purchaser of a property withdraws from the transaction rather than wait for a court order to be granted. Therefore, there is a clear and practical reason for appointing a second attorney from the outset where a donor co-owns property with their attorney.
Removal under s41 TA 1925
Sometimes for various reasons it may not be possible for the continuing trustees to make use either of an express power or the s36 power. Such a situation may arise where there is a dispute between the trustees over the removal of P or who he should be replaced with. Or equally there may not be cast-iron evidence that P has lost capacity, for example because P is exhibiting behaviour which suggests that he lacks capacity, but no medical report can be obtained. In the latter circumstance, exercising the s36 power would be imprudent as questions could subsequently arise over whether the conditions in s36 (1) were met. If the requirements were not met, there would not be any valid replacement of P, meaning that any subsequent decisions by the trustees which P did not join in with could be void.
Instead another option is to apply to the Court under s41 TA 1925. This section provides that where it is expedient to appoint a new trustee or trustees in place of an existing trustee, and it proves inexpedient, difficult or impracticable to do so without the assistance of the Court, the Court can make an order effecting the replacement. One of the specific scenarios mentioned in the section where the Court can make an order is where the trustee concerned lacks capacity. If the position is that the continuing trustees are not sure whether or not P lacks capacity, but that he appears unwilling or unable to act in the administration of the trust in any event, two alternative grounds for removal would be available to the continuing trustees: both lack of capacity and the lack of willingness/ability to act in the trusts.
- Read and understand the powers under the trust deed. Is there an express power or will you need to rely on s36 TA 1925? If no definitive evidence of incapacity is available, will an application under s41 TA 1925 be necessary?
- Establish whether P has a beneficial interest. If so an application to the Court of Protection is probably necessary if it is proposed that s36 be used.
- Does P lack capacity to deal with their duties as a trustee? If so consider obtaining a medical report to demonstrate this. Put it on file with trust documentation in case there is a dispute at a later date.
- Consider retiring P (with their consent) before they are unable to deal with their trustee functions, this can work if P has a condition that is likely to deteriorate such as dementia and Alzheimer’s disease and you spot it early enough. This is a good reason to have regular meetings with the trustees.
- When making LPAs suggest that co-owners or those who may become co-owners appoint another attorney as well as the co-owner to avoid an application to the Court to sell property in the future.
- Suggest that all co-owners have an LPA in the first place to avoid the need to go to Court, if one party loses capacity.
- If you do need to make an application to the Court of Protection, follow the practice direction mentioned above in order to ensure that the Court has all the information required to make a decision. This will reduce delays in getting the order you require.
1 There are further options available, but the ones listed above are those which are most commonly available. For another possibility, see s20 of the Trusts of Land and Appointment of Trustees Act 1996.
2 If the trust is one of land and one of the trustees is also an attorney under an EPA or LPA for the other, it may be possible to add an additional trustee if the objective is to sell the house by using the doctrine of overreaching.