I wonder if someone could help with a query about removing a trustee. I have a NRB discretionary will trust where the deceased appointed his wife and 2 sons as trustees. Wife does not have capacity so I am using s36(1) to replace her (she doesn’t have a beneficial interest). Ideally we would like to remove her without a replacement but I understand that s36(1) only allows replacement and not just removal.
However, can I replace wife using s36(1) and then could that newly appointed replacement trustee retire so we are left with the desired outcome of just the 2 sons as trustees?
Under S36Trustee Act it states that a “a new trustee or new trustees may be appointed in the place of the trustee who is removed.”
I have always taken this to mean that provided there are at least two trustees remaining after the removal and the removed trustee doesn’t hold a beneficial interest a new trustee doesn’t need to be appointed.
I don’t think that Kim Jarvis is correct in her view that the use of “may” in s36(1) means that the trustees can chose not to replace an incapable trustee. S36 does not contain an explicit power enabling trustees (or those with power to appoint trustees) to remove an incapable trustee. It is for this reason that most trust precedent lists include an explicit power to remove. Practical Trust Precedents includes not only 3 versions of an explicit power to remove but also precedent deeds for the replacement of an incapable trustee by a new trustee.
My answer is based on Counsel’s opinion. S36(1) allows for a trustee who “is incapable of acting therein” to be removed as a trustee. The section then goes on to say “may” appoint another in their place.
The word “remove” does not appear in s36(1). Whilst I hesitate to disagree with counsel, surely there would need to be something specific to confer a power of removal. Indeed, s36(2) provides: “Where a trustee has been removed under a power contained in the instrument creating the trust, a new trustee or new trustees may be appointed in the place of the trustee who is removed”. Why would there need to be an explicit power to remove in the trust instrument if s36(1) did the job?
I see the point that Counsel was making regarding the word “may”, but I am in agreement with @GL2 that the “may” looks to me to refer to whole phrase of (and I paraphrase) “appoint a person to replace the trustee that needs to be removed”. Counsel must be taking the view that where a person is incapable of acting (or one of the other things referred to s36(1)) then they cease to be a trustee and then the other trustees have the option to appoint a replacement. Indeed, the first of the situations is simply where a trustee wishes to retire - if s36(1) were to imply that a trustee could simply retire without replacement, then that would make s39 redundant (or the s39 provisions ought to refer to s36(1) or perhaps be included in s36).
Rather, my view is that the other trustees “may” or “may not” exercise that “power to replace”: for example, the other trustees may be happy for the trustee in question to remain outside the UK for more than 12 months - if the trustees choose not to exercise that power, then the trustee remains a trustee. Likewise if the trustee in question loses mental capacity: they do not automatically cease to be a trustee (but it could make administering the trust quite difficult for the trustees unless they can act by majority). Indeed, the trustee may only temporarily be “incapable of acting” and then recover: if they are not removed in the meantime, then they will continue to be a trustee and be able to act once recovered.
Tolley’s Administration of Trusts states: “Section 36(1) of TA 1925 also gives powers of removal in certain circumstances, but the trustee so removed must be replaced.” They also state: “There is, upon a trustee losing capacity, no automatic discharge but they can, under section 36(1) of TA 1925, be removed by the person who has the power of appointing new trustees, failing whom the trustees for the time being of the settlement, and a new trustee appointed in their place.”
There might, of course, have been some other specific detail in the case that Kim Jarvis refers to, which distinguishes it from Tolley’s interpretation, which is why it is important to look at the trust instrument and all the circumstances.
I disagree with Graeme Lindop on this rare occasion.
1 The normal connotation of the word “may” is permissive.
2 It must surely be interpreted consistently throughout this part of the Act unless the context indicates otherwise and it appears in s36 (2) (6) (6A) and s37(1)(a)(b).
3 The context does this where the word “shall” is used as in s34(1)(2), s35, s37(1) (c) (d) and (2), and s39(1).
4 It is true that the Act does not use the word “removed” save in s36(2) but this may be explained by its reference to a power in the instrument, thus modifying by statute such a power in the light of s69(2). I suggest that:
(a) in s36(2) it does not matter what the power is called in the instrument; and
(b) would apply to a power exercisable in any circumstances similar to those in s36 (1); and
(c) those circumstances can be, entirely appropriately, described in their effect as the “removal” of a trustee
5 s36(9) only limits the appointment of a new trustee as regards s36(1)(b). If a trustee is “incapable of acting therein” per s36(1) (a) a new trustee may be appointed notwithstanding s36(9). The practical issue is that (apart from s39 (1) circumstances) the incapable trustee cannot be discharged from office so s41 has to be used. It may also be invoked out of caution where the trustees are not certain that the essential facts of the case constitute the correct circumstances for exercise of the power.
6 s37 (1)(c) emphasises the permissive nature of the word “may”, subject to the stated qualification as does s39(1). Subject to the qualification in each, no new trust needs to be appointed but where it applies there is a statutory limitation on the permissive nature of the power to appoint.
So in my view the word “may” wherever it appears in Part III of TA 1925 means can and not must, subject to where the statute clearly overrides or qualifies the power, and the same analysis will apply to an express power to the same effect.
On reflection my point at 4(c) can only be colloquially be described as “removal” because as I later acknowledge the mere exercise of the power cannot lawfully discharge the trustee from office and appointing a new trustee will not cure that practically unless there is majority rule.
I do not agree with Tolley’s if per Paul Davidoff it says a trustee who is “removed” must be replaced. But, oh dear, I was too quick to correct myself . As he indicates the concluding words of s36(1) confer in substance a power of removal but in the s39 circumstances they are qualified, as they are by s37(1)(c). The effect of those two qualifications can amount to mandating a new appointment.
I am struggling in the light of the above discussion to come to any other conclusion than the power granted under s 36(1) is permissive and that there appears to be no grounds to support the view that this power imposes a duty to act.
Malcolm - I agree: the trustees do not “have to” exercise the power, but my reading of s36(1) is that this is a power to “replace a trustee” who falls into one of the categories described in that sub-section, rather than a power to “remove such a trustee with a further option as to whether another trustee should be appointed in that trustee’s place”. If s36(1) is construed as, initially, a power to remove (without any need for a replacement to be appointed), there would be no need to include in that sub-section the “option” to appoint a replacement trustee, as this power is already granted by s36(6) (power to appoint additional trustees).
However, where one trustee lacks sufficient mental capacity to act and decisions of the trustees of a particular trust must be made unanimously, if the other trustees do not exercise this power then it is likely to make it very difficult for them to administer the trust - arguably they might have a “duty” to exercise that “power”, because it can hardly be said to be in the interests of the beneficiaries for the trustees to be unable to administer their trust effectively. That said, the s36(1) power may be exercised in situations which would not necessarily cause such difficulties these days, such as where a trustee remains out of the UK for 12 months (although that is likely to have been more troublesome back in 1925): so, again, in such a case, the other trustees do not have to replace that trustee and can happily continue administering the trust with that overseas trustee still in office.
Malcolm, I agree with your conclusion, as has Paul Davidoff. All powers given to Trustees are exercisable at their discretion and are not mandatory. The power given in s36(1) is to appoint a trustee in place of an incapable one (amongst other things). There is nothing in TA 1925 to give Trustees the power to remove another Trustee under any circumstances let alone the loss of capacity. It is for this reason that drafting precedents include clauses providing specific powers to remove Trustees and include draft deeds to replace an incapable Trustee under s36(1) with a capable one.
I do not think it matters a jot what you describe the power in s36(1) to be. It is discretionary but if exercised it operates to appoint a new trustee “in place of” the existing trustee. Replacement, removal? Whatever, he or she is no longer a trustee. As to whether the power should or should not be exercised in any given situation, without seeking directions, on pain of breach of trust, is highly fact-dependent but a potentially continuing problem with unanimity, if it is not disapplied, is plain.
Fascinating discussion about section 36(1) which I wanted to jump onto.
If a trustee is outside the UK for 12 months entitling the other trustees to use section 36(1) - is that time broken by any short trips to the UK during that time? Is there any case law on it ?
