I have a case where the Settlor, who is also one of the trustees, has lost mental capacity. The Settlor is both the life tenant and a discretionary beneficiary of the trust.
The trust deed provides that the power to appoint and remove trustees is vested in the Settlor during their lifetime while they retain capacity, and thereafter in the remaining trustees.
The deed does not define whether “remaining trustees” is intended to include the Settlor (despite their loss of capacity) together with the other trustees, or whether it refers only to those trustees who retain capacity.
My view is that, applying the ordinary and legal meaning of the words, “remaining trustees” should be interpreted as referring to the trustees who remain able to act — i.e. those who are alive and have capacity.
On that basis, the trustees who retain capacity should be able to exercise the power to remove the Settlor as trustee, without the need to apply to the Court of Protection. Would other practitioners agree with this interpretation?
The suggested construction (“remaining trustees” = trustees who retain capacity) is linguistically attractive, but it may be insufficient to avoid Court of Protection (CoP) involvement as the incapacitated settlor-trustee is also entitled in possession to a beneficial interest (life tenant), a replacement effected by the continuing trustees is likely to engage the protective policy of Trustee Act 1925 s 36(9) and therefore CoP leave is typically treated as required .
Trustees ordinarily must act unanimously unless the instrument clearly disapplies that rule; an incapacitated trustee remains in office and therefore remains part of “the trustees” unless and until replaced/removed by a valid mechanism.
If the Settlor is only a discretionary object then he does not have an interest in possession for s.36(9) as he has no interest in the trust at all.
I would not like to comment on whether the settlor is a “remaining” trustee without seeing the whole clause and ideally the entire trust instrument but it does sound like the power to appoint is vested serially in first the settlor and if not having capacity then in the remaining i.e. linguistically the other trustees. But it is hard enough interpreting some trust clauses with the entire instrument available so impossible otherwise save to offer an educated (supposedly) guess.
Apologies. I see the OP says the settlor is also LT. s.36(9) must be followed.
A trust that has the Settlor as LT and discretionary object of a power of appointment or a DT remainder AND has the power of appointing a trustee comes perilously close to being either a sham or at least ineffective against a creditor and certainly a financial resource for a court applying remedies on divorce per Prest v Petrodel. Of course that depends on whether anyone issues a challenge and much may turn on the identity of the trustees and the independent (of the settlor) character of their acts of administration, if any, of the trust.
For income tax and IHT and for some CGT purposes it will be settlor-interested so HMRC will have little incentive to impugn the entire validity of the trust. However a disappointed beneficiary who is not benefitted under the trust in the event but would have inherited the trust property under the Settlor’s Will or intestacy might have a go if it is worth the candle.
I am very glad I didn’t draft it and hope whoever did has good PI cover.
S.69(2) TA 1925 allows a settlor to exclude or derogate from any provision of the Act unless the contrary intention appears. But otherwise all those provisions apply by default so any such alteration must be done with great care. Ss.36-41 constitute a tried and tested code which it may be dangerous for express contrary drafting to modify or replace. It is almost certainly impossible to exclude the jurisdiction of the Court under s.41 as ouster would be against public policy.
It is very unusual to seek to subvert this code. It used to be routine to allow 100% advancement under s.32 and is often still helpful for tax reasons to disapply s.31 but unusual to modify ss.36-40, even to avoid the nasty trap in s.37(1)(c), although a wider express power of removal is sometimes seen. Because the rules do not apply to foreign law trusts it is by contrast common to see detailed succession machinery for trustees (and protectors) where the proper law is lacking or susceptible to uncontrollable change.
It certainly cannot be assumed that any old express power which purports to exclude or modify this code will be self-contained and an injudicious combination of it with the default statutory provisions may risk producing an interpretational dog’s breakfast. Ad hoc construction issues may prove expensive to resolve whereas after 100 years the undiluted statute itself now generates virtually no controversy as to its operation.