Trustee Lacks capacity to sell property

I am arguing with myself about this and can’t decide whether I am missing something so was hoping for a steer or an agreement of my thought process.
H & W transferred their property into a discretionary trust in 2010. The trustees being themselves along with their two daughters, A & B. This was done for care fee protection reasons and H & W continued to live there for a number of years. A & B are also attorneys for both of their parents. Both parents have now lost capacity and are residing in a care home so the property is to be sold.
My thinking (and I stand to be corrected) is that A & B can sign for themselves and for their parents under the lasting power of attorney, to ensure that we have two trustees to give a valid receipt. The sale proceeds would then be held on behalf of the trust. Is this correct or have I missed something?
Once the sale has gone through, if the daughters want to invest the funds I would suspect we would need to apply to remove the trustees to allow the fund managers to invest the funds, but if they just wanted to appoint out the funds, or put them in a bank account until something happens to their parents, could this be done without removing the incapacitated trustee. Would this be a breach of trust. The daughters are beneficiaries but there is also another son who is a potential beneficiary of the trust.

If the parents have lost capacity they are no longer trustees. A & B are the only trustees. It would be useful to have (medical) evidence that both parents lack capacity.

Subject to anything to the contrary in the trust deed, section 36(1) Trustee Act 1925 provides that, where a trustee is incapable of acting as a trustee (a letter from a doctor would be useful evidence here), the other trustees (or the person(s) nominated in the trust deed for the purpose of appointing new trustees) can appoint replacement trustees. In other words, s36(1) provides a power to replace incapacitated trustees.
This assumes that the parents were not granted an interest in possession (for which see s36(9)).
I am not aware of any statutory provision by which a trustee automatically ceases to be a trustee if incapacitated.

Paul Davidoff
New Quadrant Partners Ltd

I agree with Paul Davidoff that there is no automatic retirement of trustees upon a loss of capacity. Some trust deeds specifically provide for the removal of incapacitous trustees but, at present, this is not usual and, where it exists, generally requires a report from an appropriately qualified medical practitioner and a resolution of all the other trustees.

However, I do not believe that A and B can exercise the trustee functions of H and W under the powers of attorney, unless such powers comply with the provisions of s.25 Trustee Act 1925.

Although the Trustee Delegation Act 1999, enables attorneys to exercise trustee functions of their principal, the principal must have a beneficial interest in the land (s.1.(1) TDA). If H and W do not have interests in possession, but are only objects of the trustees’ discretion, as is indicated in the question, can they be said to have a beneficial interest – I believe the answer will be “No”.

On the basis that H and W have lost capacity, I suggest the most appropriate way forward would be for A and B to proceed to remove them as trustees under the provisions of s.36 Trustee Act 1925.

This will leave them as the only trustees at which time they should find it more straightforward to open a trustees’ bank account and engage investment managers.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

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thank you all, can i just be clear, the immediate issue is that of selling the property. Can A & B do this both as trustees themselves and as attorneys under LPAs acting for their parents? I appreciate they will still need to hold the funds on behalf of the trust, but are they able to sell the property in this scenario or do the other trustees need to be removed first.
Apologies if I have misread a reply that already tells me this.

On the understanding that H and W are merely objects of the trustees’ discretion and do not have a defined beneficial interest in the property, s.1 of the Trustee Delegation Act 1999 is not engaged.

Accordingly, A and B cannot exercise H and W’s trustee functions under the LPAs.

On that basis, H and W will need to be removed as trustees before a sale can be made.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

Hi Paul

You will need to apply to the Court of Protection to replace the incapacitated trustee because the power under s36(1) Trustee Act 1925 only applies where the incapacitated trustee has an interest in possession. This is confirmed by s36(9) TA 1925. This generally won’t apply to a discretionary beneficiary.

If you want guidance on how to make an application, then look at Practice Direction 9F Practice Direction 9F Applications to appoint or discharge a trustee ( which covers the main points.

Also, with regard to the short term issue of the sale of the property, I presume that the title in registered in the names of H, W, A & B, so the incapacitated trustee would have to be removed before the sale can take place. Also, as the property is owned by the trust and under trust law all trustees have to consent to the sale, you come back to the original problem of replacing the incapacitated trustee.

While quite a lot of forms need to be completed to make the application to the C of P, when I dealt wit such an application it was dealt with by the C of P within a few months. The problem in my case is that by the time the C of P had made their order the incapacitated trustee had passed away.


Philip Evans TEP
Head of Trusts
Graham & Rosen Solicitors, Hull

Hi Philip

I am perplexed by your assertion that s.36(1) Trustee Act 1925 applies only if the incapacitated trustee has an interest in possession. There is no such limitation in s.36(1). s.36(9) does not limit the application of the section, as you suggest, it merely sets out additional requirements when the incapacitated trustee also has an interest in possession. As you say, though, s.36(9) does not apply where the incapacitated trustee is a discretionary beneficiary.

In general, an application to court is not required to remove a trustee under the provisions of s.36(1), provided that the requirements of that sub-section are complied with and s.36(9) is not engaged.

Although s.36(1) also refers to the appointment of one or more other persons to be a trustee or trustees in place of the trustee being removed, such power is permissive only and the trustees are not obliged to exercise it.

Accordingly, if A and B removed H and W as trustees under the power in s.36(1), they need not appoint replacement trustees, subject to my cautionary note should the STEP Standard Provisions (1st Edition) have been incorporated into the terms of the trust).

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

Dear Paul Saunders, I have now looked into the law further and I accept I incorrectly interpreted s36(1) TA 1925. So the consent of the Court of Protection is not required in this case.

What I am confused about is the final paragraph of your post of 30 May about removing H & W without appointing replacement trustees. As I read s36(1), it gives a power to replace H & W with one or more new trustees, but I cannot see any reference to just removing them, and thus with A & B in this case continuing as the only trustees of the trust.

I have looked at some of the publications on my Lexis and Practical Law subscriptions and they refer to including additional provisions in panel 11 of the Land Registry form TR1 to show that the transferors (who would be A & B in this case) are transferring the title to A, B, X & Y (with X & Y being the new trustees) in exercise of A & B’s powers under s36(1) TA 1925. This would then result in the legal title to the property being in the names of A, B, X & Y and they could then sell the property to the purchaser.

Can you elaborate?

Philip Evans

Dear Philip

s.36(1) states that the trustees “may” appoint replacement trustees. Lewin on Trusts (19th Edition) at 14-032 identifies this power as “permissive only and the person in whom the power is vested has no obligation to make an appointment”.

In the present case, if H and W are removed as trustees, that would leave A and B as the remaining trustees. Accordingly, the requirement for there to be at least 2 trustees will be fulfilled and there will be no statutory need for either of H or W to be replaced as trustees.

With regard to Lexis and Practical Law, I suggest this can only apply if replacement trustees are appointed under s.36(1), which does not necessarily occur.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

Thanks for clarifying this.

Philip Evans