Reasons for removal of a trustee
In a straightforward case, a trustee might want to retire from their role voluntarily and need to be replaced by a new trustee. In more complex cases, that trustee might have lost their physical or mental capacity preventing them from fulfilling their role and complying with their duties. In a hostile case, there can be a breakdown of relations between one trustee and the other trustees and beneficiaries caused by serious misconduct. That trustee will need to be removed in order to protect the trust’s assets and ensure that it is administered properly.
The duties of a trustee
A trustee must act in accordance with the terms of the trust deed, which varies for each trust. In addition to those specific obligations, there are general duties which always apply. A trustee must act at all times in the best interests of the beneficiaries of the trust. They must not allow there to be a conflict between their own interests and the interests of the beneficiaries. They also have a duty of honesty, integrity and loyalty towards the beneficiaries.
How can a trustee be removed?
You can ask a trustee if they are willing to voluntarily resign from their role. If they decline, the first step is to review the trust deed to find out whether it contains an express power to appoint, substitute or remove a trustee. This is more common in offshore trusts settled under the law of jurisdictions such as Jersey, Guernsey, the British Virgin Islands and the Cayman Islands. Those trust deeds (referred to as instruments for offshore jurisdictions which don’t have the concept of a deed) often grant that express power of removal to a protector, a person who ensures that the trustees are complying with their obligations and administering the trust properly.
Where there is no express power, under sections 19 and 20 of the Trusts of Land and Appointment of Trustees Act 1996, adult beneficiaries who are all absolutely entitled to the trust property can unanimously agree to replace a trustee. The other options which are commonly used are as follows:
Section 36 of the Trustee Act 1925
If a trustee has died, been outside of the United Kingdom for more than 12 months, wishes to retire as a trustee and be discharged from their duties, refuses to fulfil their role, is unfit or incapable of doing so or is a child, the other trustees may appoint a new trustee to replace that trustee in writing.
Section 41 of the Trustee Act 1925
The court has the power to appoint a new trustee (in substitution for an existing trustee) when it is expedient to do so and it is inexpedient, difficult or impracticable to do so without a court order. This power applies generally and also when a trustee has lost capacity, is a bankrupt or is a corporation which is in liquidation or has been dissolved.
The court’s inherent jurisdiction
This can apply where there is no factual dispute and there is a need to urgently protect the trust assets, for example if the trustees are dissipating the trust assets and have refused to comply with court orders.
What are the grounds for removing a trustee?
Under the court’s inherent jurisdiction, it will primarily consider the impact of the existing trustee on the welfare of the trust’s beneficiaries when deciding whether to grant an order for the removal of that trustee. It will then also consider what impact the trustee is having on the proper administration of the trust and protection of trust property.
If a trustee is causing the beneficiaries to be harmed, is not properly administering the trust and is not protecting the trust property through their own serious misconduct, the court will be justified in removing that trustee. Serious misconduct could be where a trustee acts in breach of trust, overcharges or improperly exercises their discretion by, for example, failing to take into account the wishes of the trust’s settlor and any relevant information. They might be actively biased and favour one beneficiary over others without justification. In contrast, they might have become absent and simply failed to carry out their role.
Trustees and beneficiaries can fall out with each other. So long as a trust remains capable of being efficiently administered, however, it is unlikely that friction or hostility between a trustee and beneficiaries will be sufficient grounds to justify the removal of a trustee. For removal to be justified, the relationship between the trustee and beneficiaries needs to have broken down. That broken relationship needs to be adversely impacting or impeding the trustee’s ability to perform their duties. Where this reaches the level of jeopardising the proper administration of the trust, removal of the trustee may be justified as the best way to protect the welfare of the beneficiaries.
How is property transferred to the new trustee?
Trustees legally own property on behalf of the trust, so that any trust property is held in the name of the trustees. That property needs to be transferred from the retiring trustee to the new replacement trustee. The legal term for this transfer is the vesting of property in the new trustee. Depending on each case, this vesting will either be automatic or a vesting order will need to be granted by the court.
Liability for costs of any court application
The default rule under the law of England and Wales is that the losing party pays the majority of the legal fees and other litigation costs incurred by the winning party.