Consideration of the implications of trustees losing capacity is real and with an increasingly ageing population family business owners need to give the matter appropriate thought too.
The ageing population in the UK is leading to an increase in the need for planning for physical and mental incapacity but, where it becomes apparent that a trustee has lost or is beginning to lose mental capacity and will soon no longer be able to perform their duties as trustee, how should the other trustees deal with this incapax trustee?
Loss of capacity does not automatically terminate trusteeship and the trustee lacking capacity cannot resign. However, the removal of the incapax trustee should be dealt with as quickly as possible – an incapax trustee can be a barrier to the efficient running of the trust – and there are various forms of intervention for the co-trustees to consider.
The logical place to begin is with reference to the Trust Deed and to remove the incapax trustee by using specific powers provided in the deed, but it is uncommon to find an express trustee power to deal with the removal of an incapax trustee and so the trustees and/or beneficiaries may need to look to other available options.
In certain circumstances, removal of a trustee can be achieved under Section 23 of the Trusts (Scotland) Act 1921 (the 1921 Act). Here, the Court may remove a trustee who is unfit or incapable of acting.
The legislation is as follows:-
s.23Court may remove trustees in certain cases
In the event of any trustee being or becoming insane or incapable of acting by reason of physical or mental disability or being absent from the United Kingdom continuously for a period of at least six months, or having disappeared for a like period, such trustee, in the case of insanity or incapacity of acting by reason of physical or mental disability, shall, and in the case of continuous absence from the United Kingdom or disappearance for a period of six months or upwards, may, on application in manner in this section provided by any co-trustee or any beneficiary or other person interested in the trust estate, be removed from office upon such evidence as shall satisfy the court to which the application is made of the insanity, incapacity, or continuous absence or disappearance of such trustee. Such application may be made either to the Court of Session or to an appropriate sheriff court.
For removal of a trustee, application may be made by any of the co-trustees (if there are any), any beneficiary or any other person who has an interest in the trust. It is, however, preferable that all acting trustees other than the trustee whose removal is sought and all beneficiaries should be party to the petition or, at least, agree to the petition. Personal service should be made on the trustee being removed unless medical reasons accepted by the Court make that undesirable.
At present there is concurrent jurisdiction in the Outer House of the Court of Session and in the relevant Sheriff Court for the removal of trustees under Section 23. In terms of the 1921 Act, it is the Court that makes the order for removal for cases of mental or physical incapacity. The Court has discretion as to the evidence necessary to support a petition but in the case of mental incapacity medical certificates in the form used in petitions for the appointment of curators bonis are normally regarded as sufficient evidence of the trustee’s incapacity, but if the petition is opposed a proof may be required.
In Scots law there is, unless prescribed by the Trust Deed, no minimum or maximum number of trustees required to carry on the administration of a trust (although in charitable trusts a minimum of three is desirable). The 1921 Act provides, at section 13 (1) and (2) that the remaining trustee(s) shall have power to appoint additional trustees. Where a trustee suffers some form of legal incapacity, therefore, “the remaining trustees may continue to act as a majority and quorum and should consider appointing additional trustees”.
If the removed trustee is a sole trustee a new one must be appointed. It might be that the settlor of the trust has retained the power to appoint new trustees in which case he or she (if still alive) can do so. Rarely, the trust deed might provide that a third party will have the power to appoint new trustees. Alternatively, the court can appoint new trustees where the sole acting trustee is incapax by virtue of section 22 of the 1921 Act, on application by any person with an interest in the trust estate. A new trustee appointed by the court under section 22 would have all of the powers that the original trustees of the trust in question would have had.
For situations that fall outside the scope of the legislation, removal of a trustee can be achieved at common law by application to the Court of Session which, in the exercise of the nobile officium, has a general discretion to remove a trustee. The nobile officium is, in Scotland, the equitable jurisdiction of the Court of Session to give a remedy where none would otherwise be available. The petition for removal of the trustee must be presented to the Outer House by one or more of the trustees or beneficiaries.
Before removing a trustee, the court must be satisfied that the beneficiaries would not be prejudiced or the trust purposes obstructed if the trustee were to continue in office. Minor irregularities or technical illegalities are not generally sufficient. The nobile officium has rarely been applied in connection with the removal of an incapax trustee or executor due to the existence of statute-based law - it cannot be used where a statutory remedy is available but might still be borne in mind depending on the circumstances.
In practice, given the time and expense involved in removing (and appointing) trustees by court order it is important to consider rotation of trustees but remembering that, in many situations, the remaining trustees can continue to act as a majority and quorum.