Removal of incapable trustee

I have a case where the incapacitated trustee is one of 4 trustees, together with her children, of her late husband’s nil-rate band discretionary Will trust. In her mid-80s, she is in residential care with no prospect of returning home. This is supported by written medical evidence of incapacity.

The only asset of the NRB trust is a deed of debt whereby she has promised to pay the nil-rate sum (£200,000) to the NRB trustees on demand enforceable by the trustees at any time. That sum is represented by that amount of equity in the house which has plenty of value left to cover it.

The remaining trustees need to sell her unoccupied house to prevent its deterioration and to raise funds towards her residential care.

I see 2 possible, but mutually exclusive and contradictory, courses of action. One is her removal by the continuing trustees and their appointment of a replacement trustee relying on s36 Trustee Act 1925 if she is deemed not to have a beneficial interest in possession in the trust. Query: is she deemed to have such an interest which would bring s.36(9) and the Court of Protection into play or does the IOU hanging over her estate like a sword of Damocles (as envisaged in the trust wording) negate any inference of a beneficial interest in possession? She is registered as the sole proprietor with a Form A restriction on the title.

The children, her co-trustees, hold a Property & Finance LPA registered 7 years ago when she had capacity. As an alternative, would s.1 Trustee Delegation Act 1999 come into play on the basis she does have a beneficial interest in the land including its sale proceeds? This would enable one or more of her attorneys (the LPA powers are joint and several) to sell the house and give a valid receipt to a purchaser without recourse to the CoP.

I would appreciate any contributions on this even if they show I am barking up one or even two wrong trees.

I don’t see what reason you have for thinking she might have an interest in possession in the trust. Surely if this was a normal nil-rate band discretionary trust then it was written in such a way that she did not have a qualifying interest in possession. Indeed that was usually the raison d’etre of the trust. The ownership of the house doesn’t change that because the house is not a trust asset. And her also being a debtor of the trust doesn’t change her status as beneficiary. What am I missing?

I dont see the need to remove the trustee for the sale as she is the sole legal holder and so the property can be sold under the LPA.

The debt to the Trust can be repaid out of the proceeds but without removing her as a trustee first, the trustees will not be able to waive the index linked element (assuming there is one) so Income tax could be an issue. Further the trustees will not be able to do anything with the funds. On that basis she will need to be removed