Back to Basics: Removing and retiring trustees and PRs

There are three primary situations in which you will find yourself needing to remove a fellow professional from a position of fiduciary responsibility. The first is when the fellow professional fiduciary is willing and able to retire themselves from the role. The second is on their unanticipated mental incapacity to perform the role. The third is where you, as a professional co-fiduciary, request, or alternatively, the client requests, the removal of the fiduciary from the role, against their will.

The first of these scenarios is relatively straightforward to deal with. This article will therefore focus on the second two scenarios, and how you can best deal with them in practice.

Removing a trustee without mental capacity

The thorny issue of removing an incapable trustee is exacerbated by the following factual matrix.

• A trustee that is mentally incapable of performing their role (P) cannot retire.
• There is no automatic discharge of P on the onset of incapacity.
• There is no automatic vesting of assets in the remaining trustees.
• P cannot appoint further trustees to act on their behalf.
• Section 25 of the Trustee Act 1925 (TA 1925) delegation does not survive mental incapacity.
• A deputy is not automatically permitted to act for P in a trustee role (section 20(3)(c) of the Mental Capacity Act 2005 (MCA 2005)).

The matter of how to remove P as quickly and efficiently as possible will depend on a number of factors. Primarily, it will depend on whether P has a beneficial interest in the trust. Second, it will depend on whether P made a lasting power of attorney (LPA) or enduring power of attorney (EPA) before their incapacity. As this article is in relation to professional fiduciaries, we will focus on scenarios where P does not have a beneficial interest in the trust.

In the professional sphere, situations where P has no beneficial interest in the trust broadly split into four scenarios.

1. There are remaining competent co-trustees or persons with the right to appoint a new trustee

If either of the above persons retain capacity, the remaining competent co-trustee or person with power to appoint can, under section 36(1) of the TA 1925, simply remove the incompetent trustee and replace them with a new one, provided this is done ‘in writing’. The same power to appoint applies to trustees who are only able to act as a result of the chain of representation (section 26(4) of the TA 1925). Any trustee appointed in this manner shall ‘…have the same powers, authorities, and discretions, and may in all respects act as if he had been originally appointed a trustee…’ (section 36(7) of the TA 1925).

2. The beneficiaries are all of full age and competency, and are fully entitled under the trust

Clearly, in this scenario, the beneficiaries could simply wind up the trust. However, if they did not wish to, they can appoint a new trustee to act in the place of the incompetent trustee, provided they do so in writing and they all agree (section 20 of the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA 1996)). The persons they can appoint are: a deputy; an attorney under a power of attorney; or a person so authorised by the Court of Protection (CoP) (section 20(2) of the TOLATA 1996). Therefore, it would be useful if the outgoing trustee had made an LPA. The process for asking the CoP to authorise the taking on of a role of trustee is set out in CoP practice direction 9G, which is very detailed as to the information you will need to provide and the forms that are needed. The court fee is £400.

3. No remaining capable trustees but some capable beneficiaries

The remaining capable beneficiaries are able to apply under section 41 of the TA 1925 to the High Court, or to the county court if the matter is within its equity jurisdiction (see section 67 of the TA 1925) to ‘…make an order appointing a new trustee or new trustees either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee’ (section 41(1) of the TA 1925). The application will be made under the ‘part 8 procedure’, using the part 8 claim form, as set out in the Civil Procedure Rules 2015 (CPR 2015).

The application can be brought by any person beneficially interested in the trust (or by a remaining trustee, if appropriate). All beneficiaries must be made parties to the application or represented by parties, except for those who cannot be found or are outside the jurisdiction. The court fee is £480 in the High Court and £280 in the county court. Precedent forms are freely available via legal precedent software.

You should note that this removal does not limit any liability of the removed trustee.

4. There are no remaining capable trustees or beneficiaries

In any circumstance, it is open to any interested person to apply to the CoP under section 18(j) of the MCA 2005, to ask the court to ‘…exercise any power (including the power to consent) vested in P whether beneficially or as a trustee or otherwise’. This may be useful in situations where there is a connected matter for which a decision of the CoP is required. The powers of the court are wide, and include vesting (paragraph 5(1) of schedule 2 to the MCA 2005). While this solution may seem appealing, it is often clearer and more effective to make an application requesting that the court execute the specific legislative remedy that you are seeking, rather than rely on a catch-all provision. Again, the application would be made under Practice Direction 9G.

In any of the four above circumstances, you will need to consider the skills base of the incompetent and proposed new trustee. You will also need to ensure that the trust property fully vests in the new trustee. In practice, this generally means that the appointment of a new trustee must be made by deed, to comply with section 40 of the TA 1925. However, caution should be used when relying on this vesting section, as it has a few exceptions (section 40(4) of the TA 1925). If a separate vesting order is needed, an application must be made under section 54 of the TA 1925. In any case, the usual rules regarding the number of trustees apply, and one person, acting in two roles, cannot give good receipt for funds (section 7 of the Trustee Delegation Act 1999). Further, permission may be required for any application to the CoP (rule 52 of the Court of Protection Rules 2007).

For completeness, the flowchart covering mentally incompetent trustees (see ‘Related files’ above) also covers scenarios where P does have a beneficial interest in the trust.

Removing an incapable personal representative

If the testator is alive and well, then they can simply execute a new will or codicil appointing a new executor. In all situations, it is worth considering whether a trust corporation or office appointment would be wise, and failing that, ensuring that there is a substitute appointment in place, to avoid problems occurring later. You should also consider if your firm is culpable in some way – for example, by accepting the appointment or by failing to effect succession planning – and if it is appropriate to charge for the additional work. The original will file may need to be obtained to inform this.

If the testator lacks capacity, or if they have died, matters become more complicated. We will consider each scenario in turn.

1. Testator lacks capacity

An application for the execution of a new statutory will or codicil to the CoP will be required to appoint a replacement executor (schedule 2 to the MCA 2005).

Depending on the testator’s assets and family circumstances, this can be a lengthy and costly procedure, and is likely also to involve the appointment of the official solicitor as litigation friend for the testator. The application process will take about six months, but can be expedited. Again, careful consideration must be given as to who to appoint as executor. You should also consider whether or not a deputyship application is needed alongside the statutory will application.

2. Testator has died but probate has not yet been granted

Rule 35(2) of the Non Contentious Probate Rules 1987 permits an ‘attorney’, ‘person authorised by the Court of Protection’ or ‘the person entitled to the residuary estate’ to take out a grant for the ‘use and benefit of the incapable person’ (rule 35(4)). Any person with a prior right must be cleared off, and notice of the application must be given to the CoP (rule 35(5)).

The registrar will want confirmation from the CoP that it does not object to the proposal. The CoP will want information about the estate, P and the proposed representative. In a case where there is no attorney, it is likely that the deputy will be needed, and it is often worth making an application for authority to act for P in the estate alongside the deputyship application, to save time and expense.

3. Testator has died and probate has been granted

A beneficiary or a representative of the personal representative (PR) will need to make an application under section 50 of the Administration of Justice Act 1985 for the incapable executor to be removed and a capable PR appointed in their place. It cannot be made by consent.

In all scenarios, you will always need to consider who the client is, and who should pay for any remedial work. The definition of ‘client’ in section 87(1)(a) of the Solicitors Act 1974 includes (italics added): ‘in relation to contentious business, any person who as a principal or on behalf of another person retains or employs, or is about to retain or employ, a solicitor, and any person who is or may be liable to pay a solicitor’s costs’. It is also possible that, as a result of bearing any cost of remedial work, whether directly or via insurers, your firm becomes the client, and you will need to consider if a conflict of interest arises as a result of this, and make appropriate arrangements. However, it is most likely that the client will remain the trust, estate or attorney, as they will be instructing you to act, even if the firm bears the cost.

Hostile removal of PR or trustee

Trustees / PRs may be reluctant to retire for a number of reasons, including the honourable (fulfilling the wishes of the settlor / testator) and the less honourable (remuneration, pride, professional reputation).

After accepting an appointment as PR, the only way to terminate the appointment is by court order.

Methods for trustees are as follows.

• The trust instrument can make provision for the removal of trustees.
• The person nominated to appoint new trustees, or if there is no such person, the continuing trustee(s) (the ‘relevant person’), can remove and replace a trustee under the statutory power in section 36(1) of the TA 1925, where the trustee both remains out of the UK for more than 12 months, and refuses to act or is unfit or incapable of acting.
• The court has power under section 41 of the TA 1925 to remove and replace a trustee where it is expedient to do so.
• The court also has inherent jurisdiction to remove a trustee (with or without appointing a replacement one, provided sufficient trustees remain) in order to protect the interests of the beneficiaries or the security of the trust property. Examples might be where the trustee has been made bankrupt or is convicted of an offence of dishonesty.
• Where the trust instrument does not nominate a person to appoint new trustees, the trust beneficiaries can (provided that between them, they are together entitled to all the trust property, and they are all adult and have capacity), in effect, remove a trustee under section 19 of the Trusts of Land and Appointment of Trustees Act 1996, by directing that trustee to retire. This power can be excluded in certain circumstances. Where it is exercisable, the beneficiaries can direct a trustee to retire with or without appointing a replacement trustee, although if no new trustee is appointed, then at least two of the present trustees, or a sole trustee if it is a trust corporation, must remain in office (and those continuing trustees must consent to the compulsory retirement).

Principles for the court’s exercise of its discretion

The principles for removal of a trustee were laid down in Letterstedt v Broers (1884) 9 App Cas 371.

• Where there is evidence of positive misconduct, the courts is likely to act, but not every mistake or neglect of duty or inaccuracy of conduct will result in removal.
• Acts or omissions must be such as to endanger the trust property, or show a want of honesty, proper capacity to execute the duties, or reasonable fidelity.
• Where the trustee has not acted improperly, but the court is satisfied that the continuance of the trustee would prevent the trusts being properly executed, the trustee can be removed.
• ‘Mere friction or hostility between trustees and the immediate possessor of the trust estate is not of itself a reason for the removal of trustees.’

Recent case law

In Thomas & Agnes Carvel Foundation v Carvel [2008] Ch 395, Mr Justice Lewison accepted that the circumstances in which a PR should be removed are the same as those that would apply to a trustee (see also Kershaw v Micklethwaite [2010] EWHC 506 (Ch) and National Westminster Bank plc v Lucas [2014] EWHC 653 (Ch)).

In Angus v Emmott [2010] EWHC 154 (Ch), the court affirmed that it was not necessary to establish wrongdoing or fault to obtain removal.

The choice of executors, especially if it is a considered one by the deceased, is to be given weight by the court – see Kershaw.

In Khan v Crossland [2012] WTLR 841, the applicant stepchild of the deceased sought removal under section 116 of the Senior Courts Act 1981 of the testator’s chosen executors, who were two partners in a firm of will-writers. The will-writers contended that they had been appointed by the testator, and that there was nothing to disentitle them from acting. The applicants were successful. While the testator’s choice of executors was a relevant factor, it was not decisive, and should be balanced against the wishes of the beneficiaries, who were of full age and capacity. This, combined with the fact that the relationship between the parties had broken down, made it expedient to appoint the applicant as administrator.

Wilby v Rigby [2015] EWHC 2394 (Ch) and Harris v Earwicker [2015] EWHC 1915 (Ch) provide very recent examples. In the former, both executors were removed as the estate administrators when the estate administration reached a standstill due to a breakdown in relations between them. In the latter, the defendants asked the court to remove the three executors. The court only removed one (he had, in any event, agreed to go). While there was no wrongdoing or fault on his part, it was in the best interests of the beneficiaries as a whole and the smooth running of the will trust for him to be removed. The others remained, the court noting that: the section 50 of the Administration of Justice Act 1985 jurisdiction was not to be exercised lightly; there was little left to do in winding up the estate; and the costs in replacing the current executors were considerable.

There is often a tension between ensuring that the testator’s choice is given weight, and the sense that the professionals are clinging on for reasons relating to personal interests, rather than what is best for the estate.

Costs

An application for removal is hostile, so the general rule that costs follow the event, subject to the court’s discretion, applies (rule 44.2(2) of the CPR 2015).

There is an exception for PRs and trustees. Where they are parties to proceedings, they are entitled to be paid the costs of the proceedings, insofar as they are not recovered from or paid by any other person out of the trust fund or estate on the indemnity basis, so long as they are ‘properly incurred’ (rule 46.3 of the CPR 2015, and see also Practice Direction 46, rule 46.3).

If removed, PRs / trustees will probably be ordered to pay the claimant’s costs on the standard basis, and an order will be made disentitling them from recovering their own costs from the trust fund. If they have acted unreasonably in the course of litigation and unnecessary costs have been incurred as a result, or the court considers that they should, at the outset, have complied with the claimant beneficiary’s request that they should retire and that their failure to do so has resulted in the matter being brought before the court unnecessarily, they may be ordered to pay the claimant beneficiary’s costs on the indemnity basis.

A beneficiary making such an application who intends to recover costs from the trust fund should ensure that intention to do so is served on the other parties, along with a costs estimate.