Private Lives - Removing Trustees who have lost mental capacity

03 October 2016

Many people assume the role of a Trustee at some time in their lives, maybe in a professional role as a Solicitor or Accountant or as a family friend.

Many people assume the role of a Trustee at some time in their lives, maybe in a professional role as a Solicitor or Accountant or as a trusted family friend or Executor. The role of a Trustee can go on for many years and it is extremely common for a Trustee to lose their mental capacity.

It is quite common for nothing to happen for long periods and then just when action is required, there is no one to carry out these duties.

Trustees are generally required to act jointly, so even if there is one or more mentally capable Trustee left the mental incapacity of one could still cause problems.

A Trustee can no longer simply retire once they have lost capacity, or appoint someone else in their place and more importantly lack of capacity does not discharge you from office as a Trustee.

At this stage the surviving Trustees and probably the beneficiaries will have to consider how to remove the incapacitated Trustee.

There could be an express power in the trust deed but more commonly the surviving Trustees can remove the mentally incapable Trustee under Section 36 of the Trustee Act. If this is not available (see below), then an application may have to be made to court.

Under Section 36 there is power given to particular individuals in the trust deed or if there are no such individuals, then to the surviving or continuing Trustees, to remove the Trustee who is ‘incapable of acting’.

The first question for continuing Trustees (or if there are none the continuing beneficiaries), to ask themselves is what does 'incapable of acting' actually mean?

There is no statutory definition of this in the Trustee Act although there is a consensus of opinion now that it is likely to be sufficient if the Trustee lacks capacity within the meaning of  Section 2 of the Mental Capacity Act 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 in relation to the matter because of an impairment of, or a disturbance of, the mind or brain".

In many cases, the continuing Trustees' first action must be to get a GP or consultant psychiatrist to prepare a report because to rely on Section 36 of the Trustee Act they must clearly show that  the Trustee they wish to remove lacks capacity. These issues are not always clear cut and can be  difficult  to deal with.

Once mental incapacity has been established there are other problems that can arise. For example, the Trustees cannot use Section 36 and make a simple Deed of Retirement and Appointment of a New Trustee if the Trustee in question also had a beneficial interest in the property. This is of course a very common scenario.

In that situation there is a complicated procedure where the continuing Trustees, or continuing beneficiaries if there are no Trustees, have to apply to the Court of Protection. Inevitably this will cause delay and legal fees. This could be disastrous if swift action is required, perhaps to sell a property.

There could also be no agreement  between the continuing Trustees about the replacement of the mentally incapable Trustee or about the quality of the medical evidence. In those circumstances, it may well be necessary to apply to the court under Section 41 of the Trustee Act. This section "provides 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".

There is indeed always a solution but sometimes it will be time-consuming and expensive to achieve  and not without difficulty or disagreement. It is far better for Trustees to be conscious and aware  of their increasing frailty and for their co-Trustees (and beneficiaries) to be sensitive to this. This is a good reason for Trustees and beneficiaries to keep in touch over the years.

The content of this article is for general information only. For further information regarding removing Trustees, please a member of our Private Client Team. Law covered as at October 2016.