Trust states that Settlor has “power of appointing an additional or new trustee vested in her during her lifetime”.
Settlor has lost capacity. Daugher has LPA for her.
A Trustee wants to retire and appoint replacement to act with sole continuing trustee. I’m preparing the Deed and wondering what references are needed.
I note s36 covers the situation where appointor is unable to act but I’m wondering about practicality - a) should deed refer to the lack of capacity and rely on s36 for existing trustees to appoint replacement; b) should attorney sign on behalf of the appointor, be party to the Deed and refer to express power in Trust or c) is application to the Court needed?
I believe the starting point is to identify if the settlor is acting in a fiduciary capacity, or in a personal capacity, when exercising the power of appointment.
Whilst I understand an attorney under a property and affairs LPA may exercise “personal” powers of P, they cannot exercise P’s “fiduciary” powers outside of the limitations set down in the Trustee Delegation Act 1999. The power of appointing trustees is not the exercise of a “trustee function” within the definition in TDA 1999.
Although there has been a lot of discussion as to whether the power to appoint (or remove) trustees is “fiduciary” or “personal”, I understand that the courts are veering towards the view that the power to appoint trustees is the exercise carries with it fiduciary duties (towards the beneficiaries) which would suggest, to my mind, that it must be a fiduciary power. Having said that, do different standards apply to a power exercisable by the settlor than to a “third party” power holder?
Whilst I believe that the power should be treated as a fiduciary power, I appreciate that if that is not the case then any appointment of trustees on that basis would be void (as would the purported release of any “outgoing” trustee).
If uncertainty persists, the most appropriate way forward may be to apply to court for directions.
However, I am sure that thus is not a novel situation and, like EMyers, would be interested to learn how others have managed this situation.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
If we side step the LPA point, using s36 where the Trustees have power to replace Trustees if the appointor is unable - what are your thoughts on what practicalities need to be addressed to satisfy that the appointor is unable? Would a Court be needed to confirm this? A doctors note? Or just reference to that in the Deed?
s.36 Trustee Act 1925 requires that, in order to override the settlor’s power of appointment, they are required to be (inter alia) “unfit to act” or “incapable of acting” as a trustee. I understand it is sufficient to reference this within the deed changing the trustees. The onus, though, is on those exercising the power in the place of the settlor to believe in the truth of such reference.
When purporting to exercise the settlor’s power, the trustees are well advised to have obtained appropriate evidence to support their assertion. Should the appointment be challenged and the trustees are found to have usurped the power, they may well have the costs of such a challenge awarded against them if they are unable to provide evidence of the grounds for their belief that they are able to validly exercise the power.
I recommend the trustees obtain a report from an appropriately qualified person (e.g. phsycho-geriatrician) before proceeding with the change in trustees - the cost of which would seem to be reasonably incurred in the administration of the trust (provided of course that the cost is, itself, reasonable))
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals