Trustees who have lost capacity a guide to removing and replacing them

1. Introduction
1.1 It is an extremely common situation for a trustee to lose capacity to administer a
trust. Since trustees are normally obliged to act jointly, action usually needs to be
taken to remove the trustee and replace him/her with someone who does have
capacity, as incapacity does not, of itself, have the effect of discharging the
trustee from office. There are a number of ways of doing this, but care and
attention needs to be given to which route is available in each case and which
route will be the most cost-effective. This article is intended to be a guide to some
of the most common ways of removing a trustee.
1.2 The incapacitated trustee will be referred to as P.
2. The options an overview
2.1 The options include:
2.1.1 An attorney under an EPA or LPA exercising trustee functions;
2.1.2 Utilising section 36 of the Trustee Act 1925 (TA 1925) to appoint a
2.1.3

substitute trustee, with or without a court application;

Removal of the trustee by the Court of Protection under section 54 of

2.1.4

TA 1925;
Asking the High Court to remove and replace P under section 41 of TA

2.1.5

1925, or simply to remove P under its inherent jurisdiction;

Asking the Court of Protection to exercise the trustees power to
appoint a new trustee in his place pursuant to section 18 (1) (j) of the

2.1.6

Mental Capacity Act 2005 (MCA 2005);

A direction by the beneficiaries under section 20 of the Trusts of Land
and Appointment of Trustees Act 1996 (TOLATA 1996).

3. Is any action needed at all? Delegation of trustee functions to an attorney

3.1 Where P has lost capacity but has an attorney acting under an EPA or LPA, it
may be asked whether that attorney can exercise Ps functions as trustee.
3.2 The position here is not straightforward and careful consideration of the
legislation in this area is necessary before proceeding. In narrow situations,
attorneys can exercise trustee functions but it may be easier and safer to remove
P.
3.3 The starting point is the general rule against delegation of a trustees office: see
for example Lord Walkers comment in Pitt v Holt [2013] 2 A.C. 108 at paragraph
[10] It is however for advisers to advise and for trustees to decide: trustees
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may not (except in so far as they are authorised to do so) delegate the exercise
of their discretions, even to experts.
3.4 Trust instruments may specifically authorise the delegation of trustee functions
see for example Special Provision 15 of the STEP Standard Provisions (2 nd
Edition). In addition, section 25 TA 1925 allows the delegation, by power of
attorney, of the execution or exercise of all or any of the trusts, powers and
discretions vested in [P] as trustee either alone or jointly with any other person or
persons. Such a delegation must however be for a maximum period of 12
months.
3.5 Neither a delegation made by a trustee by virtue of an express power in a trust
instrument nor a straightforward delegation under section 25 TA 1925 (e.g. under
a power of attorney given under that section alone and not in an LPA) will survive
Ps loss of capacity. What is needed is a delegation which is capable of surviving
the donors loss of capacity i.e. under a power of attorney such as an EPA or
LPA.

3.6 Historically, Section 3 (3) of the Enduring Powers of Attorney Act 1985 (EPA
1985) provided:
Subject to any conditions or restrictions contained in the instrument, an attorney
under an enduring power, whether general or limited, may (without obtaining any
consent) execute or exercise all or any of the trusts, powers, or discretions
vested in the donor as trustee and may (without the concurrence of any other
person) give a valid receipt for capital or other money paid.

3.7 So this section allowed delegation of trustee functions for an unlimited time. This
was in conflict with section 22 (2) of the Law of Property Act 1925 (LPA 1925),
which provided that if land subject to a trust of land was vested in P, a new
trustee needed to be appointed in the place of that person before the legal estate
was dealt with.
3.8 The statutory regime was tightened up following the enactment of the Trustee
Delegation Act 1999 (TDA 1999). Section 4 of TDA 1999 provided that section 3
(3) of EPA 1985 does not apply to enduring powers created after the
commencement of the Act on 1 March 2000. Nor can it apply any longer to EPAs
created before the commencement of the Act, in respect of which no application
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for registration was made before the commencement of the Act or during the
period of one year from that commencement.
3.9 In the unlikely event that (a) an EPA was created before 1 March 2000, (b) an
application for registration was made prior to March 2001 in respect of the EPA
which was then successful, and (c) the power is still subsisting, section 3 (3) of
EPA 1985 would still apply.
The post-TDA 1999 regime
3.10Under the post-TDA 1999 regime, the only situation in which trustee functions
can in practical terms be delegated on an ongoing basis 1 by P under an EPA or
LPA is where P has a beneficial interest in land. Subject to the terms of the
trust instrument and the power of attorney, the donee of a power of attorney is
not prevented from doing an act in relation to (a) land, (b) capital proceeds of a
conveyance of land or (c) income from land, by reason only that the Act
involves the exercise of a trustee function of the donor. See section 1 (1) TDA
1999. The donor of the power is made liable for the acts or defaults of the
donee in exercising any trustee function as if they were acts or defaults of the
donor.
Example 3.10
James and John are brothers and are trustees of a property in which
James holds a beneficial interest. Beneficial shares are also held by John
and their cousin Malcolm who lives in Australia. James loses capacity but
his wife Linda is his attorney under a registered LPA. The property has
previously been let to tenants but has recently become vacant, and
Malcolm has decided to come back to live in the UK. John and Linda can
decide to allow Malcolm to occupy the property for a period under a licence
whilst he finds alternative accommodation subject to conditions (e.g.
payment of an occupation rent and all bills/ costs of upkeep).2
3.11 TDA 1999 also made important provision in relation to section 22 LPA 1925.
Section 9 makes clear that section 22 (2) LPA 1925 does not prevent a legal
1 I.e. more than a year. An LPA can be used to delegate functions under section
25 TA 1925 but a section 25 delegation can last only 12 months.
2 See the right to impose reasonable conditions available to trustees under
section 13 TOLATA 1996.
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estate in land being dealt with without the appointment of a new trustee or
discharge of P at a time when the donee of an EPA or LPA is entitled to act for
the incapable trustee in the dealing.
3.12Section 1 TDA 1999 can in consequence be used to allow the sale of a coowned property to occur with the attorney acting on behalf of P.
Should an EPA or LPA be used, or is it better to remove P as trustee?
3.13 It may well be preferable to remove and replace P as trustee of the trust of
land rather than using an EPA or LPA to exercise trustee functions on an
ongoing basis. Although it will involve making an application to the Court of
Protection under section 36 (9), such applications are not that expensive, and
this avoids any issues over whether the decisions made are within the terms of
the delegation allowed under the trust or TDA 1999.
4. Section 36 of the TA 1925
4.1 This is the main way of removing and replacing P as trustee. Careful
consideration needs to be given to who can make the appointment and whether a
court application is needed.
4.2 The relevant parts of section 36 are as follows:
(1) Where a trustee, either original or substituted, and whether appointed by a
court or otherwise, is dead, or remains out of the United Kingdom for more than
twelve months, or desires to be discharged from all or any of the trusts or
powers reposed in or conferred on him, or refuses or is unfit to act therein, or is
incapable of acting therein, or is an infant, then, subject to the restrictions
imposed by this Act on the number of trustees,
(a) the person or persons nominated for the purpose of appointing new trustees
by the instrument, if any, creating the trust; or
(b) if there is no such person, or no such person able and willing to act, then the
surviving or continuing trustees or trustee for the time being, or the personal
representatives of the last surviving or continuing trustee;
may, by writing, appoint one or more other persons (whether or not being the
persons exercising the power) to be a trustee or trustees in the place of the
trustee so deceased remaining out of the United Kingdom, desiring to be
discharged, refusing, or being unfit or being incapable, or being an infant, as
aforesaid.
(2) Where a trustee has been removed under a power contained in the
instrument creating the trust, a new trustee or new trustees may be appointed in
the place of the trustee who is removed, as if he were dead, or, in the case of a
corporation, as if the corporation desired to be discharged from the trust, and
the provisions of this section shall apply accordingly, but subject to the
restrictions imposed by this Act on the number of trustees.

(4) The power of appointment given by subsection (1) of this section or any
similar previous enactment to the personal representatives of last surviving or
continuing trustee shall be and shall be deemed always to have been exercisable
by the executors for the time being (whether original or by representation) of
such surviving or continuing trustee who have proved the will of their testator or
by the administrators for the time being of such trustee without the concurrence
of any executor who has renounced or has not proved.
(5) But a sole or last surviving executor intending to renounce, or all the
executors where they all intend to renounce, shall have and shall be deemed
always to have had power, at any time before renouncing probate, to exercise
the power of appointment given by this section, or by any similar previous
enactment, if willing to act for that purpose and without thereby accepting the
office of executor.
(6) Where, in the case of any trust, there are not more than three trustees
(a) the person or persons nominated for the purpose of appointing new trustees
by the instrument, if any, creating the trust; or
(b) if there is no such person, or no such person able and willing to act, then the
trustee or trustees for the time being;
may, by writing, appoint another person or other persons to be an additional
trustee or additional trustees, but it shall not be obligatory to appoint any
additional trustee, unless the instrument, if any, creating the trust, or any
statutory enactment provides to the contrary, not shall the number of trustees
be increased beyond four by virtue of any such appointment.
(7) Every new trustee appointed under this section as well before as after all the
trust property becomes by law, or by assurance, or otherwise, vested in him,
shall have the same powers, authorities, and discretions, and may in all respects
act as if he had been originally appointed a trustee by the instrument, if any,
creating the trust.
(9) Where a trustee lacks capacity to exercise his functions as trustee and is also
entitled in possession to some beneficial interest in the trust property, no
appointment of a new trustee in his place shall be made by virtue of paragraph
(b) of subsection (1) of this section unless leave to make the appointment had
been given by the Court of Protection.

4.3 The first question to ask is who is entitled to make the appointment. The section
sets out a hierarchy of people:
(1) If there is a person who is given the power to appoint new trustees under the
trust instrument, it is that person only who can make the appointment, unless
they are unable or unwilling to act;
(2) Otherwise, the surviving or continuing trustee or trustees (i.e. the trustees
other than P) can make the appointment;
(3) If there is no surviving or continuing trustee, it can be made by the personal
representatives of the last surviving or continuing trustee.
4.4 The second question to ask is whether an application to the Court of Protection is
required. It is easiest to consider this by using examples.
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Example 4.4A
Walt and Jesse are the trustees of a settlement in which they also have a beneficial
interest. Walt loses capacity. Under the trust instrument, a power of appointment of
new trustees is given to Saul. Saul may execute a deed of retirement and
appointment removing Walt as trustee and appointing himself as trustee in addition
to Jesse. There is no need for an application to be made to the Court of Protection
as the appointment is being made under section 36 (1) (a), not section 36 (1) (b)
see the terms of subsection (9).
Example 4.4B
Facts as above, save that this time there is no express power of appointment
contained in the trust instrument. Jesse can execute a deed of retirement and
appointment of new trustee, but this time leave of the Court of Protection will be
required.
Example 4.4C
Facts as in Example 4.4A, save that this time (a) there is no express power of
appointment and (b) Walt does not have a beneficial interest in the trust fund. Jesse
can execute a deed of retirement and appointment of new trustee, no application to
the Court of Protection is required.
4.5 Section 36 covers most situations where P lacks capacity. However, there are
some cases where it will not work, or will not be sufficient on its own:
Example 4.5A
Gus is the sole trustee of a settlement. He loses capacity. There is no express power
of appointment under the trust. Nor are there any surviving or continuing trustees
who can make the appointment. Section 36 cannot be used. Gus must be removed
by other means.
Example 4.5B
Hank and Marie are the trustees of a settlement. Hank dies and then Marie loses
capacity. There is no express power of appointment under the trust. Hank cannot be
termed a surviving or continuing trustee, such that his personal representatives can

exercise the statutory power, since he died before Marie lost capacity. Section 36 is
unavailable.
Example 4.5C
Walt and Jesse are the trustees of a settlement which holds property which falls
within section 40 (4) TA 1925 (e.g. certain mortgages, certain leases, and certain
stocks and shares). Walt loses capacity, and Jesse appoints a new trustee in his
place under section 36. Owing to the effect of section 40 (4) TA 1925, the property
which falls within that subsection will not vest in the new trustee. Consider instead of
using section 36 an application under section 41 or 54 TA 1925 (latter dealt with
below).
The procedure where an application is to be made to the Court of Protection under section
36 (9) TA 1925
4.6 An application can be made without permission where it is made by a co-trustee
or other person with the power to appoint a new trustee. The application should
be made in Form COP1 together with evidence of Ps lack of capacity to exercise
his trustee functions in Form COP3. Any deputy who has been appointed should
be notified of the application.
4.7 Detailed procedural requirements are set down in Practice Direction 9G to the
Court of Protection Rules 2007.
5. Section 54 of TA 1925
5.1 Section 54 provides a useful alternative in some circumstances to either a
section 36 appointment or an application to the High Court. The drafting of
section 54 itself is opaque. However, in summary, it allows an application to the
Court of Protection for removal of P where (a) P has a beneficial interest in the
trust fund, (b) a deputy has been appointed for P or an application for the
appointment of a deputy has been made but not determined and (c) P has lost
capacity to act as trustee. It does not work where P has an attorney under an
LPA. As well as removing and replacing P, the court can make orders vesting
trust property in the new trustees. These powers could be of benefit in the
scenarios discussed in Examples 4.5A (assuming Gus has a beneficial interest)
and 4.5C above.
6. Removal and appointment under section 41 TA 1925
6.1 Section 41 (1) TA 1925 provides:
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(1) The court may, whenever it is expedient to appoint a new trustee or new
trustees, and it is found inexpedient difficult or impracticable so to do without
the assistance of the court, make an order appointing a new trustee or new
trustees either in substitution for or in addition to any existing trustees or
trustees, or although there is no existing trustee.

In particular and without prejudice to the generality of the foregoing

provision, the court may make an order appointing a new trustee in
substitution for a trustee who lacks capacity to exercise his functions as a
trustee, or is a bankrupt, or is a corporation which is in liquidation or has
been dissolved.

6.2 This section allows an application to the High Court (Chancery Division) for the
removal of P as trustee and his replacement with someone else. The court can
make any necessary vesting orders. One could turn to this section in Example
4.5A if Gus does not have a beneficial interest in the trust fund. Or, it can be used
if other applications need to be made at the same time to the Chancery Division
concerning the administration of the trust often the case.
6.3 If it is not desired to replace P for any reason for example because there are
already multiple trustees then an application could instead be made for the
removal of P as trustee under the inherent jurisdiction of the Chancery Division.
However, the court may well take the view in many cases that it is appropriate for
a replacement for P to be appointed under section 41 TA 1925.
6.4 Normally the costs of parties to a successful removal application under section 41
or 54 TA 1925 or under the inherent jurisdiction will be ordered to be paid on the
indemnity basis out of the capital of the trust fund.
7. Section 18 (1) (j) MCA 2005 exercising Ps power to appoint a new trustee
Example 7.1
Adam and John are the trustees of a family settlement. John has lost
capacity. Under the trust instrument, John is given the power to appoint a
new trustee in place of any trustee who has lost capacity.
7.1 If John does not have a beneficial interest in the trust fund, then the
straightforward approach here is to use section 36 TA 1925, which requires only a
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deed of retirement and appointment of new trustee to be executed by Adam to

remove John as trustee. If John does have a beneficial interest in the fund, leave
would be required from the Court of Protection under section 36 (9) TA 1925 to
make the appointment which is proposed.
7.2 However, an alternative route where P has a beneficial interest in the fund would
be to use section 18 (1) (j) MCA 2005 to make the appointment. Under this
section, the powers of the Court of Protection regarding Ps property and affairs
extend to the exercise of any power (including a power to consent) vested in P
whether beneficially or as a trustee or otherwise. This includes Johns power to
appoint a new trustee in place of any trustee who has lost capacity. Section 18 (1)
(j) is often cited as an alternative in section 36 (9) applications.
7.3 Section 18 (1) (j) is also available where the person given the express power has
lost capacity, and the trustee who needs to be removed has also lost capacity. In
this scenario, section 36 may be unavailable if the trustee lacking capacity is the
sole trustee, so section 18 MCA 2005 proves quite useful.
7.4 Section 18 can further be used to exercise Ps power to retire as trustee under
section 39 TA 1925, but in general the Court of Protection prefers P to be
replaced with another trustee rather than simply to retire.
8. Appointments by the beneficiaries under TOLATA 1996
8.1 Section 20 TOLATA 1996 provides a further alternative to section 36 TA 1925 in
some circumstances, where that section cannot be used. The section applies
where (a) a trustee lacks capacity to exercise his functions as trustee (b) there is
no person who is both entitled and willing and able to appoint a trustee in place of
him under section 36 (1) of TA 1925 and (c) the beneficiaries under the trust are
of full age and capacity and (taken together) are absolutely entitled to the
property subject to the trust. Note that the trust does not have to be a trust of
land.
8.2 P obviously cannot be a beneficiary if section 20 is to be used, since then the
beneficiaries under the trust would not all have capacity.
8.3 Under section 20 (2), the beneficiaries may give to (a) a deputy appointed for P
by the Court of Protection, (b) an attorney acting for P under a registered EPA or
LPA or (c) a person authorised for the purposes by the Court of Protection a
written direction to appoint by writing the person or persons specified in the
direction to be a trustee or trustees in place of the incapable trustee.
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8.4 The direction has to be given by all the beneficiaries unanimously, usually by
means of a single direction (although identical directions by each beneficiary
would suffice).
8.5 An appointment under section 20 will result in the vesting of all assets in the
trustees save for those specified in section 40 (4) TA 1925, providing the
appointment is made by the person concerned by deed. Hence, if there are any
assets falling within section 40 (4) TA 1925, an appointment under section 20
may not be appropriate.
8.6 Note that some trust drafting precedents exclude the operation of section 20
TOLATA 1996, in which case it is not available. Similarly, it is possible in the case
of a trust created before 1 January 1997 (the date of commencement of TOLATA)
for the settlor to execute a deed providing that section 20 should not apply.
Otherwise the section applies to trusts, whenever created.
Things which wont work
9. Sometimes it is as useful to know what doesnt work as what does work!
Exercise of trustee functions by the Court of Protection under section 18 MCA 2005
10. Under section 18 (1) (j) MCA 2005, the powers of the Court of Protection regarding
Ps property and affairs extend as stated above to the exercise of any power
(including a power to consent) vested in P whether beneficially or as a trustee or
otherwise. In theory, this could include the court actually exercising trustee functions
rather than removing the trustee. However, in practice the court is unlikely to want to
get involved in the minutiae of trustee decision-making, especially where the trustee
who has lost capacity is only one of a number of trustees. Instead it is likely to see
replacement of the trustee who has lost capacity as the preferable course. Even
where P is the sole trustee and, for example, an urgent decision needs to be taken in
relation to the trust which would warrant Public Trustee v Cooper approval given the
risk of challenge by other beneficiaries going forward, it is probably more appropriate
to make an application to the Chancery Division for removal of the trustee and for
blessing of the decision to be taken.
Can a deputy exercise Ps functions as trustee?
11. The answer is no. Section 20 MCA 2005 provides that a deputy may not be given
powers with respect to the exercise of any power vested in P as trustee. This

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therefore rules out the idea of making a deputyship application in order for the deputy
to exercise Ps powers under the trust.
Capacity
12. How do you decide whether or not P lacks capacity? In many cases it will be obvious,
but not all.
13. The test under the MCA 2005 clearly applies in respect of:
(1) Whether or not the Court of Protection has jurisdiction to exercise on Ps behalf a
power to appoint new trustees under section 18 (1) (j) MCA 2005;
(2) Applications under section 36 (9) TA 1925;
(3) Directions by beneficiaries under section 20 TOLATA 1996, which specifically
refers to the MCA 2005 test;
(4) Section 54 TA 1925 applications.
14. In other contexts e.g. section 36 appointments where the Court of Protection is not
going to be involved, it is likely to be enough if the test in MCA 2005 is satisfied. 3
However, it would seem prudent to make an application under section 41 TA 1925, if
for example there is evidence that the trustee is no longer finding it easy to discharge
his duties but the position regarding capacity is unclear or an assessment of capacity
cannot be obtained.

WILLIAM EAST
24 May 2016

3 See comment to that effect in Lewin on Trusts at 16-012.

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