Revocable life interest, incapacitated trustee and s36(9) Trustee Act 1925

Trusts Discussion
1

Hello,

I am acting for trustees who have appointed out a 10% revocable life interest from a post 2006 discretionary trust. The life tenant is also a trustee and has lost capacity to act. As the life tenant has a revocable “beneficial interest”, would you agree that an application to the Court of Protection is required for leave to replace the incapacitated trustee with a new trustee as per s36(9) Trustee Act 1925? I had hoped that as the trust remains in the relevant property regime and the life tenant does not have a “true” life interest that we would be able to avoid the Court of Protection but I cannot find anything that supports that hope.

If the incapacitated trustee had not lost capacity, it would be far simpler to revoke the life interest and replace them using the s36(1) power but, as the trust instrument does not grant the trustees the power to act by majority, I don’t think we can revoke the 10% life interest as not all trustees can consent to that action.

Any thoughts/advice would be much appreciated.

2

The question is whether the trustee is “entitled in possession to some beneficial interest in the trust property”. That is typically an “interest in possession” or “life interest” - the present right to the present enjoyment of the relevant part of the trust fund.

That is the legal position as to what constitutes an “interest in possession” (or “life interest”, if the IIP is to continue “for life”). The tax treatment is neither here nor there for trust law purposes here. So, just because the individuals has a revocable life interest which is relevant property (ie not a “qualifying IIP”) does not affect the operation of s36(9).

Paul Davidoff
New Quadrant

3

I had a feeling that may unfortunately be the answer for my clients. Thanks for your help Paul.

Tom