Appointment of new Trustee

Trusts Discussion
1

I am instructed to apply for a Property and Financial Affairs Deputyship on behalf of lay clients. P is in a care home. His wife died a few years ago. Her will left her half share of the house to a life interest trust for benefit of P. Nothing was ever done about the trust at the time of death.

The house now needs to be sold.

The Executors and trustees of the wife’s will are applying for the Deputyship.

My query is do I still need to make a separate application to appoint a new Trustee? From my reading it would appear that I do because P has a beneficial interest in the property, and so the application is made under s) 54 Trustee Act. I am just wondering if I am missing something with there already being two Trustees of the wife’s estate.

Any views gratefully received.

2

If I have understood your question correctly, P owns a half share of the family home. P’s wife has died and left the remaining half share on life interest trust for him. P’s wife appointed two executors\trustees. P does not have capacity to sell the property. Two executors are applying for deputyship over P. You want to know whether it is necessary to apply to appoint a replacement trustee for P.

The first thing to note is that each co-owner is a trustee of the land and all of the co-owners as trustees need to authorise a sale. As one of the trustees is incapable, a replacement trustee needs to be appointed for him. The fact you are applying to have the executors/trustees be appointed as his deputy is not sufficient as a deputy is not per se able to exercise the functions of a trustee.

The relevant Court of Protection guidance (COP GN2) refers to the application in this situation needing to be made under s.54 TA 1925 to appoint at least two trustees in place of the incapable trustee. The Court of Protection’s view, if I have understood correctly, is the PRs of a co-owner are not trustees of the trust of land unless their name is on the title. Therefore, two replacements are needed to ensure overreaching occurs.

It would be possible to rely on s.36(9) instead if the trustees names are on the title as in that case they are trustees themselves and can exercise the power of appointing new trustees subject to approval of the Court of Protection.

This article provides more helpful information:

Making an exit | Feature | Communities - The Law Society .

It would be interesting to hear other people’s views regarding whether the CoP is correct in saying that PRs of a co-owner are not trustees of the land unless their name is on the title as I do find that odd.

3

There are 3 separate issues here. The first 2 relate to the beneficial ownership of the property where P owns a half share and the Executors/Trustees of the late wife own the other half in trust for P. Then, of course, there is the ownership of the legal title to the property. As there has been a severance, P is now the sole Trustee of the legal title and, before a sale can take place, a replacement Trustee for P and an additional Trustee must be appointed. Because of P’s lack of capacity and beneficial ownership, that can only be sanctioned by the Court of Protection.

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4

Hi Graeme,

That is the one point that causes me confusion. Surely both P and the two executors/trustees are trustees of the legal title although I agree the CoP don’t think so?

Yours the Legal Beagle

5

Legal Beagle,

Since 1925, there has been a clear separation between ownership of the legal title to land and the beneficial ownership in it. Where there are 2 or more owners of land, the registered proprietors of the legal title hold on trust for the underlying beneficial interests. Whilst P can continue to hold the legal title as a sole surviving Trustee, because the beneficial interests are held as tenants-in-common he cannot give a good receipt for the proceeds of sale and so an additional Trustee must be appointed. However, because P lacks capacity, he cannot do so himself and so the CoP must authorise not only the appointment of the additional Trustee of the legal title but also the replacement of P as Trustee of the legal title.

The tenancy-in-common of the beneficial interest means that P himself is entitled to, presumably, a half share of the sale proceeds and the late wife’s estate is entitled to the remaining share. Probate of the late wife’s Will does not give her executors the automatic right to become Trustees of the legal title merely the right to claim the appropriate share of the sale proceeds.

HMLR Practice Guide 24 sets all this out.

Graeme Lindop
Probate Consultant
Coles Miller Solicitors LLP

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6

Hi Graeme,

I still don’t see why being a PR does not make someone a trustee of the legal title.

It is settled law that a personal representative does not just take a beneficial interest in the estate, he takes both the legal and beneficial interest. Therefore, he becomes a legal co-owner of the property, and, as a legal co-owner holds the property on trust for himself and the other co-owners, surely he is a trustee of the legal title.

One possible answer is that one needs to be listed on the title register to be a legal owner. I do not think that is correct. A legal representative of a sole legal owner has the right to sell the land regardless of whether his name is on the title. Therefore, his name being on the title cannot be essential to him being the legal owner, a legal owner being the person with the right to sell the property.

An alternative answer is that, only legal title holders whose names are on the legal title are trustees. That would be very odd, and I am not aware of any authority in support of that proposition.

To further bolster my argument that a PR is a trustee of the land, I note that sections 6(1) and 18 of the Trusts of Land and Appointment of Trustees Act 1996 establish that, to exercise their functions as trustees, and without prejudice to their functions for the purposes of administration, personal representatives have all the powers of an absolute owner. One of the powers of an absolute owner in a case where they are a co-owner is that they are the trustee of legal title.

Nonetheless, I agree that the Court of Protection believe that a PR is not a trustee of the land unless his name is on the title, and, the analysis you have set out (which matches my analysis above) makes sense on that basis. However, I query the foundation on which that analysis is based.

In respect of legal authority in support of the fact that the legal title to real estate vests in the PR, I refer to s.1(1) AEA 1925 which establishes that real estate devolves on the PRs in the same way chattels real devolved before commencement of the act. WM&S states, ‘For deaths before 1926, the whole personal estate of the deceased devolved both at law and in equity on his personal representative. So too did chattels real.’

The above is rather academic though as the Court of Protection’s view is I am wrong. Accordingly, the safest option is to proceed with the steps recommended by myself and yourself above.

Yours the Legal Beagle

7

I am somewhat perplexed by this discussion, as it is settled law that the legal title passes by survivorship, with the surviving co-owner(s) being the trustee(s) of land for those with a beneficial interest in the proceeds of sale where held under a tenancy in common.

The PRs of a deceased co-owner under a tenancy in common are merely “beneficiaries” of the trust of land and have none of the powers of a trustee of land, even if the will provides for the deceased co-owner’s share to be held in trust.

It would be for the surviving co-owner(s) to appoint the PRs as new trustees of the legal title – the trust of land – should the surviving co-owner(s) so wish.

The references quoted in relation to the title vesting in the PRs apply only on the death of the ast surviving co-owner where joint property is involved.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

8

Dear Paul,

Thank you for your response. That explains the situation well. I am pleased that I finally have an answer to this question, which caused me some confusion.

Yours the Legal Beagle

9

If the land is registered the owner of the legal title is what the proprietorship register says from time to time. If you are not named on the register you are not the owner of the legal title. A PR must apply to become legal owner: HMLR PG6.

For example:

"2.2 Registration of the personal representative(s)

The personal representative(s) of a sole registered proprietor of a registered estate or of a charge or mortgage may apply to be registered as proprietor(s) of the estate, charge or mortgage in their capacity as personal representative(s) in place of the deceased proprietor.
3. Death of a joint proprietor of a registered estate or of a charge or mortgage

If you need to apply to us to withdraw the name of a deceased joint proprietor of the registered estate or of a charge or mortgage from the register, you will need to send us:

  • form DJP
  • evidence of death"
    It is of course correct that PRs will succeed to the legal title of unregistered land but most interests in land are registrable and some compulsorily: ss2 and 4 LRA 1924 and HMLR PG1

Jack Harper

10

Hi Jack,

I don’t think that is correct. A PR of a sole legal owner is the legal owner regardless of whether his name is on the register. That is why he is able to sell without first putting his name on the register. Paul made the very sensible point that, where the PR is the the PR of a co-owner, then he is not the legal owner as the legal title passes by survivorship. I do not believe the same rule applies where the PR is the PR of a sole legal owner.

Yours the Legal Beagle

11

The effect of ss 5-12 is that first registration vests the legal title by statute in the first proprietor. Thereafter no one else owns that title unless and until registered instead.

Jack Harper

12

Dear Jack,

If you’re right, then why is a personal representative of a sole owner able to sell the property if their name is not on the title? What you’re saying makes no sense. Furthermore, according to your interpretation, when a sole owner dies, there is no legal owner until a new owner’s name is entered in the register.

Legal Beagle

13

Not so gentle then when it’s your turn. You need to read the legislation. The PR is a person who has the right to registration and is accorded a limited facility to deal with the land by s37 LRA and LRR 2003 162-4. But of course this is just nonsense.

Jack Harper

Dear Jack,

If you’re right, then why is a personal representative of a sole owner able to sell the property if their name is not on the title? What you’re saying makes absolutely no sense.

Legal Beagle

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Previous Replies
The effect of ss 5-12 is that first registration vests the legal title by statute in the first proprietor. Thereafter no one else owns that title unless and until registered instead.

Jack Harper

Hi Jack,

I don’t think that is correct. A PR of a sole legal owner is the legal owner regardless of whether his name is on the register. That is why he is able to sell without first putting his name on the register. Paul made the very sensible point that, where the PR is the the PR of a co-owner, then he is not the legal owner as the legal title passes by survivorship. I do not believe the same rule applies where the PR is the PR of a sole legal owner.

Yours the Legal Beagle

14

Dear Jack,

That is not correct. s.162(1) is simply a requirement that a PR who wants to make a transfer needs to accompany the application with a grant. It does not in any way suggest that a PR is not the legal owner. If anything, it supports the conclusion that the PR is as, otherwise the question arises on what basis the PR registering a transfer at all.

s.37 is also not relevant and concerns unregistered interests that can be protected by notice. The relevant unregistered interests are listed in Schedule 1. You will see from reviewing Schedule 1 that none of those interests concerns a personal representative per se. This point is not contentious.

Yours the Legal Beagle

15

s37(1) LRA 1925 permits the PR to deal with the land despite not being the legal owner (as not registered) and Rule 162(1) sets out the “prescribed manner/condition” and PG6 is based on this law. You would do well to consult the right Act of Parliament. I am referring to the LRA 1925 not the LRA 2002.

When I was in practice we used to refer to our residential (but not commercial) conveyancing partners as form fillers as understanding the law was not germane to what they did and, just as well, as they had no grip on it. Pile it high and sell it cheap, preferably in a low rent separate location. I did not specifically refer to LRA 1925 but I will spoonfeed next time. Though I don’t think I will be likely to seek to argue with you again about anything, given your invariably superior knowledge.

Jack Harper

1 Like
16

LRA 2002 did not replace LRA 1925 or the LRR 2003. The Explanatory Note says:
“The objectives of the Act
10.The joint project undertaken by the Law Commission and the Land Registry therefore faced a complex, and in many respects, out-dated piece of legislation. As work proceeded an additional factor had to be considered. The Land Registry has now automated many of its functions, which can now be accessed on line. It became clear during the Commission’s work that there was wide support within the property industry and from many legal practitioners for the introduction of a system of dealing with land electronically. The Law Commission and Land Registry therefore recommend that the new legislation should aim to create the necessary legal framework in which all registered conveyancing can be conducted electronically. The Act establishes such a system. The Law Commission and the Land Registry recommend a fundamental objective. To enable an effective system of electronic dealing with land, the register should be a complete and accurate reflection of the state of the title of the land at any given time, so that it is possible to investigate title to land on line, with the absolute minimum of additional inquiries and inspections.”

Jack Harper

17

I have to row back a bit. S37(1) LRA 1925 has been replaced by s24(b) LRA 2002. (And ss 5-12 of the 1925 Act have been replaced by ss 9-12 of the 2002 Act )

The ENs say of s24: “56.Owner’s powers can be exercised both by the registered proprietor, or someone entitled so to be registered, such as the personal representatives of an owner who has died.”. As regards s27 the ENs say: *Subsection (2))(a) [of s27] provides that transfers of a registered estate, i.e. a legal estate which has registered title and is not a registered charge, must be entered on a register. There are three exceptions. The first is where is a sole individual proprietor dies, where title to the estate vests by operation of law in the executors, if there are any, or in the Public Trustee until such time as there is a grant of administration. Personal representatives can apply to alter the register to bring it up to date by registering the applicant as proprietor."

LRR 2003 162-164 have been amended but their substance is unchanged.

It is curious that the ENs are much more intelligible than the text of the 2002 Act and are not just, as usual, a summary. They also divulge that the rationale of the Act as it applies to PRs is that “title to the estate vests by operation of law in the executors” and presumably in administrators after a grant" but that only makes them “someone entitled so to be registered” so it is not the legal title that vests in them prior to registration.

I must say I find ss 23,24 and 27 LRA 2002 much more opaque than their predecessor s37(1) LRA 1925. In particular s24 does not expressly state that PRs are in fact “A person…entitled to be registered as the proprietor”. Surely that should be a defined term in the Act and not left to an EN.

But the replacement of the 1925 Act by the 2002 Act does not change this:
(a) first registration vests the legal title by statute in the first proprietor. Thereafter no one else owns that legal title unless and until registered instead; and
(b) the PRs are permitted to deal with the land despite not currently being the owners of the legal title (since not registered as such) by being a person entitled to be registered, Rule 162(1) sets out the procedure, and HMLR PG6 is based on this substantive law.

Whatever title to the land devolves on the PRs prior to registration it is not the legal title.

Jack Harper

18

Dear Jack,

You have raised some interesting points here, which I had not thought about. Nonetheless, we will have to agree to disagree on this one.

S.27(2)(a) LRA 2002 indicates that usually for a disposition, including a transfer, to be completed it needs to be registered. However, s.27(5)(a) LRA 2002 indicates that on the death of a sole proprietor, the disposition is completed without any registration being necessary. It is clear from this that the transfer of a registered estate takes effect on death without any registration being necessary. According to s.132 LRA 2002, registered estate means, ‘a legal estate the title to which is entered in the register’. Accordingly, transfer of a legal estate takes place on the death of a sole proprietor regardless of whether it is registered or not.

This conclusion matches with s.1(1) AEA 1925, which establishes that real estate (the interest in which did not cease on the owners death) devolves on the PRs in the same way chattels real devolved before commencement of the act. WM&S states, ‘For deaths before 1926, the whole personal estate of the deceased devolved both at law and in equity on his personal representative. So too did chattels real.’ It is clear from s.1 that the whole estate, which would include any legal estate owned solely by the deceased, vests in the PRs.

My interpretation of s.1(1) AEA 1925 is supported by the explanatory note to s.27 LRA 2002, which you refer to. The explanatory note states that, where a sole individual proprietor dies, ‘title to the estate vests by operation of law in the executors’. My view is that reference to title is a reference to both legal and beneficial title as that is the title that a sole proprietor has.

This conclusion also matches with s.24 LRA 2002, which establishes that both the registered proprietor and a person entitled to be registered as the registered proprietor can exercise the powers of an owner. s.23 sets out what those owners powers are and the relevant explanatory note says that, the sections ‘states the unlimited powers of an owner’ subject to one change to the law. From that, I conclude that s.24 gives both the registered proprietor and those entitled to be registered the powers of an owner. If both the registered proprietor and a person entitled to be registered as a proprietor have all the powers of an owner, it would be odd to call one the legal owner and not the owner.

Finally, I note that the LRA 2002 draws a distinction between an estate owner and a registered proprietor. Therefore, the act recognises that someone can be the legal owner of an estate prior to being the registered owner. Of course, generally that occurs prior to a legal estate being registered. However, my view is it also occurs in any situation where a person is entitled to be registered as the legal owner.

I note that my explanation also avoids the problem of their being no legal owner of land during the period between the death of a sole proprietor and the registration of a new proprietor.

Finally, I note that by analysis of language alone, a right to be registered as owner is not the same as a right to be made the owner. The person is already the owner before they are registered. Registration serves solely as a record of their ownership.

This discussion has certainly deepened my understanding of legal and beneficial ownership, and may it be the first in many more lessons I learn on the forum.

Yours the Legal Beagle

19

I think the right for PRs to make a disposition of the legal estate (subject to conditions) without first being registered is an exception to the general structure of the Land Registration scheme. That scheme is designed to secure that a purchaser can rely on the proprietorship register and does not have to investigate title. Rule 162 places the onus on the applicant for registration of a transfer by PRs to provide certain supporting documentation; and exempts the registry from the liability that would normally attach to it under s103 and Sch 8 LRA 2002. Indirectly it incentivises the PRs to comply.

So it is the exception that proves the rule. Unless the PRs provide and any purchaser obtains that documentation, whatever title to registered land of the deceased devolves on the PRs under s1 AEA 1925, the PRs cannot effectively dispose of it outside the registration structure. So the normal rights of a legal owner are seriously qualified.

s27(1) LRA 2002 says: “If a disposition of a registered estate or registered charge is required to be completed by registration, it does not operate at law until the relevant registration requirements are met.” S27(5) makes 3 exceptions bur Rule 162 imposes conditions.

s1 AEA changed the law after 1925. Previously real estate devolved directly on the heir whereas leaseholds and pure personalty devolved on the PRs. So land, whether or nor registered, afterwards devolved on the PRs. LRA 1925 introduced compulsory registration, but only gradually area by area, so for some time unregistered conveyancing and traditional investigation of title operated in parallel. Once an estate was registered it could only be disposed of by the registered proprietor, the owner of the legal title depended on the register, and investigation was no longer required, but the same exception for his PRs applied as now under the now repealed s37 LRA 1925 and the original Rule 162.

So the difference between us is that your view is that the legal title of the deceased devolves on the PRs. My view is that even if that is so the PRs cannot do anything within s27(2) despite being exempted in principle by (5)(a) without in practice ensuring that the other party can obtain registration under current Rule 162. I am not sure what else they could do with their unregistered legal title, which they could not do as being owners of their equitable title or mere possessors of the land, but I suspect not much.

Jack Harper