Trustees
Law Reform Commission Trust Law – General Proposals
(Consultation Paper) (LRC CP 35 – 2005) [2006] IELRC CP35 (February 2006)
URL: http://www.bailii.org/ie/other/IELRC/2006/cp35.html
CHAPTER 1 THE OFFICE OF TRUSTEE
A
Introduction
1.01 Trusts are created for a variety of purposes but those purposes cannot be fulfilled without persons who are prepared to act as trustees by managing the trust and carrying out the wishes of the settlor. The office of trustee is an onerous one.[14] In the performance of the office, a trustee must act exclusively in the interest of the trust. The success of the trust administration often turns upon the energy and conscientiousness, not to mention expertise and wisdom of the trustee.[15]
1.02 In Ireland, the office of trustee is still governed, to a large extent, by the Trustee Act 1893. While this legislation may, at first glance, seem somewhat antiquated, some of its provisions are still as relevant today as when it was first enacted. In other areas the Act is clearly out of date and in need of reform. The only significant amendments since 1893 have been the Trustee Act 1931 which made provision, inter alia, for the appointment of new trustees in place of the holder of an extinct office and the Trustee (Authorised Investments) Act 1958 which amended the law in relation to the investment of trust funds.
1.03 In England, the Trustee Act 1893 was replaced by the Trustee Act 1925 which brought the earlier legislation up to date and further substantial changes have been enacted as a result of the Trustee Act 2000. The Trustee Act (Northern Ireland) 1958 broadly follows the English 1925 Act and the provisions of the Trustee Act 2000 have been largely mirrored in the Trustee Act (Northern Ireland) 2001. Trusts have developed in Scotland in different ways and from different sources than those in England. The Trusts (Scotland) Acts 1921 and 1961 set up a basic framework of trustees’ powers, made provision for removal and resignation of trustees and stipulated permissible trustee investments. Australia and New Zealand[16] have incorporated the English reforms of 1925 but in Canada only Manitoba[17] has done so. Ontario, Saskatchewan and British Colombia are all currently engaged in reviewing the law of trusts.
1.04 A trust may continue for lengthy periods of time and so provision has to be made for the appointment, retirement and removal of trustees. A trustee may die or become incompetent or incapable of carrying out the duties of trustee under the trust. In other instances trustees may simply not be prepared to continue to devote their time and energy to the trust and may wish to retire. The Trustee Act 1893 contains provisions relating to the appointment, retirement and removal of trustees and the purpose of this chapter is to examine the extent to which these particular provisions need to be modernised and brought up to date. The overall aim is to facilitate efficient management and administration of the trust.
B
Capacity and Suitability to Act as a Trustee
(1) The Position in Ireland
(I) General
1.05 In Ireland any person may be appointed to act as a trustee, including a minor. A beneficiary or a relative of a beneficiary[18] may be appointed as a trustee but in some cases this may be inappropriate due to the potential conflict of interest which may arise. A company may act as a trustee either solely or jointly with another person (whether an individual or another company) provided its memorandum and articles of association provide express authority to carry out such a role. As Keane J (as he then was) writing extra-judicially states: “[w]ith one exception, anyone can be appointed a trustee. The exception is a corporation which is prohibited by its constitution from being a trustee.”[19]
1.06 There are no provisions in the Trustee Act 1893 regarding who may act as a trustee. Because there are no specific qualifications required, or criteria set down, the type and expertise of trustees varies from what may be termed non-professional trustees, sometimes referred to as lay trustees, (for example, family members or friends of the settlor or testator) to professional trustees (for example, individuals or financial institutions who specialise in providing trust services).
(II) Charities
1.07 There are no provisions in the Charities Acts 1961 and 1973 regarding who may act as a trustee. In the case of charities or trusts operating through a company, the provisions of the Companies Acts 1963-2001 as to who can be a director of a company will apply. Generally, any person may become a director unless disqualified under Part VII of the Companies Act 1990.[20]
1.08 There are no residence requirements in relation to trustees and a person resident outside the jurisdiction may act as trustee for an Irish trust.[21] However, for the purposes of granting charitable tax exemption, the Revenue Commissioners specify that there should be a minimum of three trustees or officers or directors the majority of whom must be resident within the State.[22]
1.09 Unless certain specified criteria are met, every Irish registered company must have at least one Irish resident director.[23]
1.10 The Company Law Review Group recommended that:
“No individual shall become a director or secretary of a company unless such individual has attained the age of 18 years;
Any purported appointment of an individual before having attained the age of 18 years shall be ineffective and void as between the company and the individual under 18. However, third parties would not be required to enquire as to the age of a director and the rules of ostensible authority of an individual to represent a company would apply.
The implementing legislation should provide for an 18-month time period within which directors would be obliged to ensure that all directors are aged 18 years or more.”[24]
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Number of Trustees
(1) The Position in Ireland
(a) General
1.46 There is no minimum number of trustees required,[63] and there is no upper limit on the number of trustees who may be appointed.[64] In practice however, it may be desirable to have two or more trustees. A company may act as trustee, either solely or jointly. Under section 39(1) of the Settled Land Act 1882, two trustees are required to give a receipt for capital money on a sale by a tenant for life, unless the settlement provides otherwise. The trust instrument may specify that one trustee can act for all purposes including the receipt of capital monies even when the one trustee is an individual.
1.47 The general rule is that where there is more than one trustee they must act jointly, unless the trust deed provides otherwise.[65] The acts and decisions of a majority of trustees cannot bind a dissenting minority or the trust. Decisions of trustees of a charity may be taken by majority and need not be unanimous.[66] The rationale behind this is that charities will often have a substantial number of trustees giving rise to difficulties in achieving total agreement. As Luxton states “[w]here it is envisaged that there will be a large number of charity trustees, the advantages of majority rule are manifest”.[67]
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E
Appointment
The Position in Ireland
1.104 Apart from the initial appointment of trustees to facilitate the management of a trust, new trustees may be required at various stages throughout the lifetime of the trust to cater for appointments required because of death, retirement or removal of trustees. Questions arise as to who should make these appointments and when they may be made? Currently trustees may be appointed in the following ways:
(a) Trust Instrument
1.105 The trust instrument normally provides for the appointment of initial trustees and usually makes provision for the appointment of additional or replacement trustees. Unless the trust instrument so specifies the settlor does not have the power to appoint new trustees or to appoint himself or herself as trustee. This follows from the fact that the legal title becomes vested in the trustees and the settlor loses all rights to the trust property. Any powers retained by the settlor may jeopardise the tax benefits, if any, of setting up the trust and calls into question whether it is a mere sham.[122] However, the power to appoint new trustees by the settlor may be important when dealing with incapacitated beneficiaries and in such circumstances the settlor may wish to retain some control over the trust.
1.106 The power to appoint new or additional trustees is normally vested in persons nominated for that purpose in the trust instrument. However, matters relating to resignation are not usually covered in the trust instrument and this may give rise to difficulties.
(b) By the Beneficiaries
1.107 New trustees may be appointed by the beneficiaries, provided they are all sui juris and between them absolutely entitled to the entire beneficial interest in the trust.[123] Such beneficiaries may assume total control of the trust and bring it to an end altogether, if they so wish under what is known as the rule in Saunders v Vautier.[124] This ability of the beneficiaries to appoint or remove trustees, without bringing the trust to an end and setting up a new trust, has been brought into question in England following the decisions in Re Brockbank[125] and Stephenson v Barclays Bank[126] and this issue is discussed in detail at paragraphs 1.192-1.197.
(c) Statutory Provisions
1.108 The statutory provisions in the Trustee Act 1893 provide for both non-judicial and judicial appointment of trustees.
(I) Non-Judicial Appointment
1.109 Section 10(1) of the Trustee Act 1893 contains a statutory power to appoint new trustees. It should be noted, at the outset, that the intervention of the court is not required in relation to appointments made under section 10. It should also be noted that section 10 applies only if and insofar as a contrary intention is not expressed in the trust instrument.[127]
1.110 The power to appoint a new trustee may be exercised where a trustee is dead, remains out of the jurisdiction for more than twelve months, desires to be discharged from the duties of trustee, refuses to act, is unfit to act or is incapable of acting. The power is a power to appoint replacement trustees only and facilitates the replacement of an original or substituted trustee, whether the original or substituted trustee was appointed by the court or otherwise. Section 10(2)(a) of the 1893 Act provides that on the appointment of a new trustee the number of trustees may be increased. There is no power to appoint additional trustees unless an existing trustee is retiring or being removed and such trustee must be replaced.[128] Section 10(2)(c) provides that it is not necessary to appoint more than one trustee as a replacement but, except where only one trustee was originally appointed, a trustee shall not be discharged unless at least two trustees remain to perform the trust.[129] Retirement without replacement may be permitted under section 11 if certain requirements are met.[130]
1.111 The exercise of the power in circumstances where a trustee is deceased, remains outside the jurisdiction, or wishes to retire, does not pose any particular difficulties. The phrase “refuses to act” extends to the case of a disclaimer,[131] that is, where a person has not agreed to accept trusteeship in the first place. The more difficult position, in practice, is where a trustee, having been appointed, refuses to act and also refuses to resign making it difficult to appoint a replacement. In such circumstances an application to court for directions will usually be required.
1.112 With regard to the phrase “unfit to act”, Underhill and Hayton[132] note that:
“…bankruptcy (at all events where the trust property consists of money or other property capable of being misappropriated and where the beneficiaries desire his removal)[133] and liquidation or composition, or conviction of a dishonesty crime, are grounds for removal by the court under section 41 of the Trustee Act 1925.[134] It thus seems likely that they would enable a donee of a power of appointing new trustees to displace him in hostile proceedings on the ground of unfitness…..With regard to ‘incapacity’, the word is strictly limited to incapacity of the trustee arising from some personal defect, as illness, physical or mental, or infancy”.[135]
1.113 In practice, where it is proposed to remove a trustee out of court for unfitness, the trustee will usually retire voluntarily. The case will then fall under the heading of a trustee being desirous of retiring. If the trustee is unwilling to retire, an application to court may have to be made to resolve the issues.
1.114 The power to appoint new trustees may be exercised by the person or persons nominated to appoint new trustees by the trust instrument[136] or if there is no such provision or the person nominated is unable or unwilling to act[137] then the power may be exercised by the surviving or continuing[138] trustee or trustees for the time being or the personal representative of the last surviving or continuing trustee.[139]
1.115 The section authorises the person to appoint “another person or other person to be a trustee or trustees”. This implies that the person exercising the power ought not to appoint himself or herself.[140]
1.116 In the case of an express power of appointment, the trust instrument will normally set out the formalities required. As regards the statutory power of appointment, section 10(1) of the 1893 Act only requires the appointment to be “in writing”. If the appointment is made by way of deed, a vesting declaration in the trust instrument is sufficient so as to vest the trust property in the new trustee without the need for any conveyance or assignment.[141] Certain types of property are expressly excluded from the automatic vesting provisions.[142]
(II) Judicial Appointment
1.117 Section 25 of the Trustee Act 1893 grants power to the court to appoint a new trustee or new trustees[143] whenever it is expedient to do so and it would be inexpedient, difficult or impracticable to do so without the assistance of the court.[144] The appointment can be of a new trustee or new trustees either in substitution for or in addition to any existing trustee or trustees or where there is no existing trustee. This power will generally only be exercised where appointment cannot be made under the trust instrument or by using the statutory power contained in section 10 of the 1893 Act. The application may be made by a trustee or beneficiary.[145]
1.118 Apart from the specific statutory provisions, the court also has an inherent power to appoint trustees where none are appointed or where those nominated predecease the testator or refuse to act.[146] The court’s inherent jurisdiction to appoint new trustees is most frequently used when it is removing trustees in cases of dishonesty or incompetence and appointing replacements.[147]
(d) Commissioners of Charitable Donations and Bequests
1.119 Under Section 43 of the Charities Act 1961[148] the Commissioners of Charitable Donations and Bequests have power to appoint a new trustee or trustees either in substitution for or in addition to any existing trustee or trustees or where there is no existing trustee. This broad power may be exercised on the application of the trustee or trustees of the charity, on the application of any person having an interest (if there are no trustees of the charity, or they cannot be found), or of the Commissioners’ own motion.
1.120 In the case of charities or trusts operating through a company, the provisions of the Companies Acts 1963-2003 relating to the appointment of directors and other officers will apply. The articles of association will normally provide for the appointment of additional or replacement directors and for the retirement of directors by rotation.[149]
1.121 In the case of charities operating through an unincorporated association, its constitution or rules will normally provide for appointment of its office holders.
(2) Other Jurisdictions
(a) England and Wales
(I) General
1.122 Section 36 of the Trustee Act 1925 contains similar provisions to section 10 of the 1893 Act regarding the appointment of new trustees but, in addition, the statutory power can be exercised where the trustee appointed is a minor.[150] Provision is also made for the exercise of the power where a trustee is removed under a power in the trust instrument,[151] and where a corporation being a trustee has been dissolved.[152] The power of appointment given to the personal representatives of a last surviving or continuing trustee is deemed to be exercisable by the executors for the time being of such surviving or continuing trustee who have proved the will of their testator or by the administrators for the time being of several trustees, without the concurrence of any executor who has renounced.[153] The power of appointment is also available to a sole or last surviving executor intending to renounce, or all the executors where they all intend to renounce.[154]
1.123 Unlike the Irish position, the English legislation also provides at section 36(6) for the appointment of additional trustees. Section 36(6) authorises appointment of “another person or persons” and it has been held that this excludes the appointor appointing himself which is possible under section 36(1).[155] Section 37(1) of the Trustee Act 1925 provides that a power of appointment express or statutory may be used to increase the number of trustees, providing the maximum number is not exceeded. The appointment of a new trustee is not a delegable function, so the trustees may not delegate the power to any other person to exercise on their behalf.[156]
1.124 Section 41 of the 1925 Act provides for the appointment of new trustees by the court, either in addition to or in substitution for existing trustees, whenever it is expedient to do so and it would be inexpedient, difficult or impracticable to do so without the assistance of the court. A corporation appointed by the court to act as a trustee ranks as a trust corporation[157] and so is able on its own to give a valid receipt for capital moneys derived from land.
1.125 Sections 19 and 20 of the Trusts of Land and Appointment of Trustees Act 1996 make provision, in certain circumstances, for the appointment of trustees at the instance of the beneficiaries where they are of full age and capacity and together absolutely entitled to the trust property. Prior to the passing of this Act, the beneficiaries, even if between them they were entitled to bring the trust to an end under the principles of Saunders v Vautier,[158] had no power to appoint new trustees or to compel retirement of any or all of the trustees; their only remedy being an application to the court.[159] In Re Brockbank it was held by Vaisey J that beneficiaries who are together entitled to trust property were not entitled to control the exercise by their trustees of the fiduciary power of appointing new trustees; they had either to keep the trusts on foot, in which case the power of appointing new trustees remained in those given such power by the settlement, or they had to bring the settlement to an end. The intention of section 19 was to reverse the Brockbank decision. As Underhill and Hayton comment:
“The purpose of the provision is to save those beneficiaries who have collective Saunders v Vautier rights from having to terminate the trust (with disadvantageous tax consequences) and create a new trust on the same terms where they simply want to replace the trustees”.[160]
1.126 The powers in sections 19 and 20 of the 1996 Act may only be exercised where the settlement does not nominate a person to appoint new trustees or if it does not specifically provide that the provisions of the sections are not to apply.
1.127 In England and Wales it is also possible to appoint a Judicial Trustee or the Public Trustee to act as trustee.[161]
(II) Charities
1.128 Charity trustees may be appointed in the same way as general trustees under the statutory provisions of the Trustee Act 1925.
1.129 Section 83 of the Charities Act 1993 provides that if the constitution of the charity empowers the charity trustees, members of the charity or other people, by resolution at a meeting to appoint or discharge trustees, a memorandum declaring a trustee to have been appointed or discharged shall be sufficient evidence of that fact if it is signed by the person presiding at the meeting (or is signed as directed at the meeting) and is attested by two persons present at the meeting.
1.130 Section 16(1)(b) of the Charities Act 1973 provides that the Charity Commissioners may, by order, exercise the same jurisdiction and powers as are exercisable by the High Court in charity proceedings for the purposes of appointing, discharging or removing a charity trustee or trustee for a charity, or removing an officer or employee. The Charity Commissioners also have powers to appoint charity trustees under section 18(5) of the 1973 Act and to appoint additional trustees under section 18(1)(ii) as part of their temporary and protective powers after an inquiry.
1.131 The appointment and removal of directors of charitable companies is largely governed by the Companies Act 1985 and the Company Directors Disqualification Act 1996 and the terms of the company’s memorandum and articles of association.
1.132 The powers of the Charity Commissioners under the Charities Act 1993 extend to directors of charitable companies and members of charitable unincorporated associations by virtue of the definition of a charity trustee under section 97(1) of the Act.