Significant problems can arise in relation to the management and administration of trusts when a trustee becomes mentally incapable. The trust will be paralysed until the trustee has been removed and nothing can be done on the trust during this time. Trustee incapacity causes problems for the trust administration, the switching of investments, distributions to beneficiaries and for annual review meetings with financial advisers.
Where a trustee is elderly, has been diagnosed with an illness or is beginning to show initial signs of memory loss etc, it is really important to consider whether they should continue as a trustee or whether they should retire from the role. If a trustee decides to retire they can be a party to the Deed of Retirement and assist in choosing a new trustee so that the trust can continue unaffected.
If it is too late and a trustee has lost capacity already, the remaining trustees will need to remove the trustee and appoint a replacement. Thankfully there is a statutory power to replace a trustee due to incapacity as long as there are at least two continuing trustees and the incapacitated person does not have an interest in the trust. If the trustee is also a beneficiary entitled to a share of the trust fund, approval will need to be sought from the Court of Protection. This can be a lengthy and expensive process.
Sometimes trust instruments state that the person setting up the trust (the Settlor) is also the person who has the power, during their lifetime, to appoint trustees. If the Settlor, loses capacity they would be unable to make or approve these appointments. In such circumstances it usually falls to the remaining trustees to make appointments but the trust deed will need to be consulted to establish the correct way forward to ensure that any future appointments are legal.
If you are a trustee or are involved in a trust and know that one of the trustees is becoming frail please contact Helena Grady at Fogwill & Jones (Legal Services) Limited for advice. Helena is a Solicitor and member of the Society of Trust and Estate Practitioners (STEP) with many years’ experience of advising on trust matters.
Please note that, although Fogwill & Jones (Legal Services) Limited operate from the same premises as Fogwill & Jones Asset Management Limited they are entirely separate businesses. The only connection is that both are owned by Colin Fogwill. If you are a client of Fogwill & Jones Asset Management Limited you are under no obligation to instruct Fogwill & Jones (Legal Services) Limited and you may choose to instruct alternative legal advisers.
Source: Helena Grady (Solicitor) Fogwill & Jones (Legal Services) Limited – Monday, 14 October, 2019