Office of Trustee and Appointment
The first trustee is usually appointed by the settlor., in the case of a lifetime trust or by the testator in the case of a trust created by the will. The settlor transfers the assets to the trustees for the purpose of holding them under the terms of the trust.
In the case of a will trust, the will is effective only on death and the assets are vested in the trustees by the personal representatives in the course of administration. The personal representatives may also be trustees, in which event their roles may change, and to some extent merge.
The trust document should specify who has the right to appoint trustees. In default of so specifying, statutory provisions will often fill the gap and specify who has the right of appointment.
A person who is appointed as trustee is not obliged to take up his office. A trustee may accept office formally, or by assuming the duties of the office. If he does not disclaim the office within a reasonable time, he may be deemed to have assumed it.
Statutory Power to Appoint
The original trustees are usually specified by the person who creates the trust. They may but not necessarily take up their office or position. The trust deed or will should specify who has the power to appoint additional or substitute trustees.
Where there is no power under the deed or will, the Trustee Act, provides for the appointment of new trustees. The legislation is outdated (1893) and it is not as comprehensive as would be desirable.
The power to appoint trustees must be exercised in writing. Where the trust assets include real property, a deed is required. The statutory power to appoint a new trustee is vested in the person or persons nominated in the deed or will, for the purpose of appointing trustees, if any.
If there is no such person, or no such person willing and able to act, the surviving or continuing trustees (and ultimately the personal representatives of the last surviving trustee) may appoint the new trustee.
The statutory power may be exercised only where a trustee is dead, is outside his jurisdiction for 12 months, refuses to act, is unfit to act, incapable of acting or desires to be discharged. The power does not allow for the appointment of new trustees, other than where they are being replaced.
Other Means of Appointment
If the trustee does not specify who has the power to appoint, the surviving or continuing trustees or the personal representative or the last surviving or continuing trustee has the power to appoint the replacement trustee. This power is limited to replacing existing trustees.
Where all the beneficiaries agree and are all over 18 and do not suffer from an incapacity, they may appoint new trustees. This is under the general principle whereby such parties acting together may do anything, including termination of the trust.
In the absence of a power of appointment, an application to Court to appoint a trustee will be necessary. The Court power to appoint a trustee arises where it would be otherwise inexpedient, difficult or impractical to do so, without its assistance.
It is possible to apply for a court order, if necessary, to appoint new or additional trustees. The court may appoint a new trustee where it will be inexpedient, difficult, or impractical to do so without the court’s assistance.
It is a principle that the Courts of Equity will not permit a trust to fail for want of a trustee. Therefore, in the event that no trustee is available in the circumstances and there are no clear powers of appointment, a Court will appoint a trustee on an application.
Holding of Assets
In the case of a trust created by a will, the personal representatives hold the trust assets pending appointment of trustees. Where the trustees themselves have died, the trust assets pass to the personal representative of the last surviving trustees, until a new trustee is appointed.
It is generally prudent to appoint more than one trustee. When more than one trustee is appointed, they hold the trust assets jointly. On the death of one trustee, the legal title to the trust assets will vest automatically in the survivors. On the death of the last trustee, the title to the trust assets passes to his personal representative, to be held under the terms of the trust, pending the appointment of new trustees.
Trust assets are presumed to be held by trustees jointly. This means that on the death of one trustee, the legal title passes to the others automatically, without any need for an assent or administration of his estate. There exists a special procedure whereby trust assets can be vested in a new trustee without the need for a formal deed of transfer.
Resignation and Retirement
It is possible for a trustee to disclaim or not to accept the appointment. However once he has accepted it, he may only retire in accordance with the terms of the trust deed or statute.
The trust instrument may allow the trustee to retire. A trustee who has taken up office may only retire in accordance with the procedure set out in the trust deed or in legislation. If the beneficiaries are all of full age and have legal capacity, they may act collectively to release and discharge a trustee from office.
Provided that at least two trustees remain, the Trustee Act permits a trustee to retire by a declaration made by deed. Where a trustee is replaced under a statutory, trust instrument power or by court order, the existing trustee may retire.
Where there are more than two trustees, a trustee may retire without the appointment of a replacement. There must be at least two remaining and they must consent by deed to the discharge and vesting in them of the trust assets.
Removal from Office
he trust deed may specify circumstances in which trustees may be removed. If so, it applies, in addition to the following mechanisms.
If all adult beneficiaries consent, the trustees may be replaced. The trustee may be removed from office where the beneficiaries are all over age and have mental capacity. A decision of all the beneficiaries is required.
An application may be made to the court to appoint a new trustee if the existing trustee refuses or is unfit to act. The application may be made, for example, to replace
- an incompetent, dishonest, obstructive or unsuitable trustee,
- a trustee who has breached his duties, (such as a duty to avoid conflicts of interest)
- a trustee who is absent, unfit or incapable.