How Do I Remove a Trustee?

INTRODUCTION

Welcome to the world of trusts and Trustees! Before we dive into the complexities of removing a Trustee, let's recap the foundational concepts.

In order to answer the topic at hand, it's crucial to have a basic understanding of both trusts and Trustees before entering into the complexities of removing a Trustee.

So let's first address the basic concepts of Trust and Trustee, some legal terms that usually arise in the context of trusts, and then cover five essential things you need to know about Trustees.

We also encourage you to visit other relevant FAQs for a more detailed explanation of both terms.

If you're already familiar with the terms in the first part of this section, you may proceed to the second part, which deals directly with the question: 'How do I remove a Trustee?'

WHAT IS A TRUST?

A Trust is a legal arrangement in which one person or group of people (called the "Trustee(s)") holds and controls assets for another person or group of people (the "Beneficiaries").

The Trust is established by a person known as the "Settlor" or "Grantor." The Settlor transfers assets into the Trust and sets out the rules in a "Trust Agreement" or a "Will," detailing how the Trustee should handle and distribute these assets.

Note that the Settlor often acts as the Testator (the person drawing up the Will), and it is common for the Settler to also serve as a Trustee alongside other nominated Trustees.

WHY ARE TRUSTS NEEDED?

Trusts are often set up for various reasons. Here's why they're typically required:

1. Estate Planning: Trusts can help manage how an individual's assets are passed on after their death, avoiding the often lengthy and public probate process.

2. Asset Protection: Trusts can protect assets from potential creditors or legal judgements.

3. Charitable Giving: A charitable trust allows individuals to contribute to charities during their lifetime or after, often with tax benefits.

4. Managing Assets: Trusts can be used to manage assets on behalf of children or individuals who are unable to manage their own affairs due to age, illness, or disability."

WHO’S USUALLY INVOLVED?

There are three leading players in a Trust:

• The Settlor or Grantor: The person who forms the Trust and gives assets to it.

• The Trustee: The person or organisation in charge of handling and distributing the Trust's assets, according to the Trust Agreement or Will. The Trustee also legally owns and controls the assets on behalf of another person or group of Beneficiaries.

• The Beneficiaries: These are the individuals or groups who are intended to benefit from the assets in the Trust.

WHAT’S INCLUDED IN A TRUST?

In addition to the key roles, several elements are included in a Trust.

• Assets: Assets such as real estate, investments, cash, personal property, or any other significant assets that the Settlor wants to place in the Trust.

• Trust Agreement/Will: A written document, typically referred to as a "Trust Agreement," is often used to set up a Trust. This document outlines the terms, conditions, and instructions for managing and distributing the assets. In a Testamentary Trust, the Trust terms are included in a Will and come into effect upon the death of the Testator.

• Trust Administration: The Trustee is in charge of managing the assets, making investment decisions, distributing income or assets to the Beneficiaries, as specified in the Trust Agreement, and carrying out their fiduciary responsibilities.

FIVE ESSENTIAL THINGS TO KNOW ABOUT TRUSTEES:

1. Fiduciary Duty: Trustees have a fiduciary duty to the Trust's beneficiaries. This means that they must work in the best interests of the beneficiaries, use reasonable care, and avoid any conflicts of interest. They must act with integrity, in good faith, and always follow the Trust Deed. In particular, they should do the following:

• Their interests do not conflict with those of the Trust (e.g. selling Trust assets to themselves for significantly less than their market value).

• They act impartially towards the beneficiaries and refrain from favouring one over the other unless expressly permitted under the Trust Deed.

• They avoid violating a breach of Trust (e.g., even if the Trustee believes they are acting according to the law, they are not permitted to distribute funds to someone not listed as a Beneficiary of the Trust).

2. Legal Ownership: When assets are put into a Trust, the Trustee becomes the legal owner of those assets. However, the Trustee has to keep and take care of the assets for the benefit of the recipients.

3. Administration and Management: Trustees are in charge of running and managing the Trust on a daily basis. This includes things like spending assets, giving money to people who are supposed to get it, paying taxes and bills, and keeping good records.

4. Powers and Choices: The Trust document or Will that sets up the Trust will explain the Trustee's powers and choices. These powers can be broad or narrow, based on what the person who set up the Trust (the Settlor) wants.

5. Succession and Removal: In some cases, the Trust document may name a replacement Trustee who will take over if the original Trustee is unable or unwilling to keep serving. Also, the heirs or the court may be able to get rid of a Trustee if they act badly or don't do their job.

THE TOP 10 REASONS FOR REMOVING A TRUSTEE

There are several reasons for terminating a Trustee's status, including misconduct, breach of fiduciary duty, or situations where the Trustee is inept or unwilling to perform their duties properly.

Here are the top 10 reasons for removing a Trustee:

1. Breach of Trust: A Trustee may be removed for breach of trust if they fail to adhere to the provisions of the Trust Agreement. This includes failing to follow the guidelines and clauses specified in the Trust Agreement or will.

2. Death of a Trustee: As a unique position, being a Trustee cannot be transferred to the deceased Trustee's executors upon death. Therefore, the appointment of a new Trustee may be required in the event of a Trustee's passing.

3. Incapacity of a Trustee: To ensure proper administration of the Trust, it may be essential to remove a Trustee if they are no longer able to make decisions, such as illness or mental impairment.

4. Absent Trustee: A Trustee may be removed for failing to act in their capacity as Trustee and execute their duties and obligations, such as by declining to participate in Trust proceedings actively or disregarding their responsibilities.

5. Uncooperative Trustee: You are justified in seeking the removal of a Trustee if they refuse to work with other Trustees or do not adequately respond to genuine questions from beneficiaries about the Trust.

6. The Trustee is Biased: If a Trustee improperly favours some Beneficiaries over others or behaves in a way that is inconsistent with fairness and impartiality, then that Trustee can be removed.

7. Conflict of Interest: When a Trustee's personal interests conflict with those of the Trust, this can make it difficult for them to operate in the Beneficiary's best interests. This can justify their removal.

8. Overcharging: Trustees are typically entitled to fair pay. However, it may be wrong to charge them excessive amounts. If a Trustee charges an excessively high fee, this may be cause for removal.

9. Failure to Act Properly: A Trustee may need to be removed if they make bad investment choices, behave carelessly, or act neglectfully in a way that hurts the Trust or its beneficiaries.

10. Misusing Discretion: A Trustee may be removed for improperly using their discretion if they entirely reject the Settlor's wishes or fail to take into account relevant information.

Bear in mind that the precise reasons for a Trustee's removal may change based on the conditions stated in the Trust Agreement.

HOW TO REMOVE A TRUSTEE

Naturally, the most straightforward route involves soliciting the Trustee's resignation and nominating a successor, if needed.

However, if that doesn't happen, the procedure is as follows:

1. Consult the Trust Deed or Instrument

As a first step, consult the Trust Deed or other relevant instrument when deciding how to terminate a Trustee.

These documents frequently outline the Trustees' authority and responsibilities, who might be able to nominate, replace, and remove Trustees, and the grounds upon which they might do so.

So, if this situation were ever to occur, then as long as the Trust Deed's provisions are obeyed, the exiting Trustee frequently has no recourse to protest the procedure.

However, relying on one of the other approaches listed below could be required if the document is considered "silent" or restricts the authority to name or remove Trustees.

2. Section 36 of the Trustee Act 1925

When it comes to explicitly stating powers of removal, Trust Deeds can often be "silent." However, remember that even if specific powers of removal are laid out in the Trust Deed, you may be able to lean on Section 35 of the Trustee Act ("TA 1925").

Therefore, the last resort is to look to the court to remove a Trustee. When a court exercises its power under Section 35 to appoint a replacement, the effect is as follows:

a. Removal of the Existing Trustee: The Trustee who is being replaced will be removed in accordance with the court order or directive issued under Section 35. The disqualified Trustee will lose all control and accountability over the Trust's assets.

b. Replacement Trustee Appointment: A new Trustee will be appointed by court order to take the dismissed Trustee's place. All of the Trustee's responsibilities, powers, and duties will be transferred to the successor Trustee.

c. Transfer of Legal Title: The newly appointed Trustee will legally possess the Trust's assets from the ousted Trustee. According to the terms of the Trust Agreement or any applicable laws, the replacement Trustee can manage and oversee the Trust's assets.

d. Trust Continuity: Trust administration will continue as planned, thanks to the appointment of a substitute Trustee. With the new Trustee in place, the administration of the Trust and the distribution of assets can proceed unhindered.

ARE THERE ANY OTHER FACTORS TO TAKE INTO ACCOUNT?

• Type of Trust: Revocable vs Irrevocable: Trusts can be "revocable," which means that the person who set up the Trust can change or cancel it during their lifetime, or they can be "irrevocable," which means that the Trust rules can't be changed without the beneficiaries' consent or court approval.

• Trust Deed Provisions: Some Trust deeds may include specific clauses that outline the process for removing a Trustee. However, be aware that this can end up either simplifying or complicating the process.

• Reason For Removal: The actual reason for removal could have an effect on the process. Common reasons for removal include the Trustee’s incapacity, misconduct, or unwillingness to continue serving.

• Replacement of Trustee: You should also consider the process and implications of appointing a new Trustee.

ARE THERE CIRCUMSTANCES WHERE A TRUSTEE CAN BE REMOVED WITHOUT THE NEED FOR COURT INTERVENTION?

Yes. According to Section 36 of TA 1925, a Trustee may be replaced by another Trustee (subject to limitations) if they are "dead or remain outside of the United Kingdom for more than 12 months, or desire to be discharged from all of the Trust or powers reposed in or conferred upon him, or refuse or are unfit to act therein, or are incapable of acting therein, or are an infant."

However, be mindful that while some "grounds" are considered clear-cut cases, others are much harder to prove than others, e.g., the notion that a Trustee is "unfit" or "incapable."

WHAT HAPPENS IF THE TRUST OWES THE DEPARTING TRUSTEE ANY MONEY?

It is generally known that the outgoing Trustee has the right to hold onto assets until all liabilities incurred in good faith while serving as Trustee have been settled.

The departing Trustee has an equitable lien and may request that the court issue an order for the sale of sufficient Trust assets to discharge that amount if there is not enough Trust money available to cover the amount owed to them.

Need to know more or you’d like to discuss your options?

Trusts are complex legal instruments, and the rules that govern them can be intricate and nuanced. We'd be happy to help you navigate through this process to ensure you're abiding by the law and addressing your specific needs and goals."

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