In 2020 the court rules were changed to require that all residential tenants must be given 14 days’ notice of an eviction. What happens though if the eviction is cancelled on the day?
All individuals are presumed to have the mental capacity to make their own decisions unless proved otherwise. An assessment of capacity is matter specific, with reference to the Mental Capacity Act 2005. Therefore, the capacity to act as a trustee will be assessed in relation to whether the individual has the capacity to understand the powers, duties and responsibilities necessary to act in that role.
While many individuals voluntarily retire from their appointment as trustee, it is more complicated when the trustee’s capacity is in question. When an individual becomes, or starts to become, mentally incapable of performing their duties as trustee, they are not automatically discharged from their role and they cannot simply retire. Instead, other individuals, normally either a person expressly nominated in the trust deed or continuing trustees, have to take steps to remove the incapacitated trustee.
Methods of removal
In the case of trusts of land, consideration must be given to the overarching principle that applies, in which there is the requirement for at least two trustees in order to give good receipt should the property be sold. With that principle in mind, it will often not be sufficient to remove a trustee without replacing them. It is important to note that in a situation where a trustee has executed a power of attorney, the attorney can only act on behalf of an incapacitated trustee if the trustee has a beneficial interest in the land. However, one person cannot act in two roles because they can’t give good receipt to satisfy the overarching principle i.e. there must be two different signatures. If this situation arises it will be necessary for an additional trustee to be appointed: this may be completed by the attorney.
If an attorney is appointed after March 2000, they may be able to rely on section 8 Delegation Act 1999, which gives attorneys authority to appoint another trustee to act. If the trustee does not have a beneficial interest, then an attorney cannot act on their behalf. Similarly, a property and financial affairs deputy is restricted from carrying out trustee functions by section 20(3)(C)of Mental Capacity Act 2005 because roles of trustees and deputies are different and require separate applications. The method of removing and potentially replacing an incapacitated trustee will depend on the specific circumstances; details of some options are discussed below.
The trust deed
Firstly, the trust document itself can contain express authority for trustees to be removed and replaced; however, this is often not the case. In the many situations where it is not possible to rely upon the express terms of the trust deed, the powers conferred by various statutory provisions will need to be exercised.
Trustee Act 1925 – section 36
The provisions of section 36 Trustee Act 1925 (TA) confer the power to remove and replace trustees to either specified individuals or the continuing trustees. There are several scenarios in which this section may be used, one of which is where a trustee no longer has the mental capacity to continue to act in the role. The provisions of this section are only available where there is at least one continuing trustee, and there is no dispute as to the lack of capacity or the removal and appointment of a new trustee. From a practical point of view, appointments under section 36 TA are usually made by deed, ensuring that the trust property passes and vests in the hands of the new trustee in accordance with section 40.
Court of Protection (COP)
Where an incapacitated trustee has a beneficial interest in the trust, i.e. they are a beneficiary of the trust fund or they have a beneficial interest in the land, section 36(9) TA requires the continuing trustee(s) to apply to the COP for permission to retire and replace the trustee. Practice Direction 9G of the Court of Protection Rules 2007 provides guidance on this. This situation commonly arises where, for example, a husband and wife hold their home jointly, and one of them loses mental capacity. This loss of capacity means that they are unable to continue in their role as trustee, and the surviving capable spouse has to apply for them to be removed and appoint a third party in their place in order to sell the property. Unfortunately, some couples mistakenly think that by preparing powers of attorney and appointing each other then they are prepared for the eventuality of one losing capacity; however, they still need to give consideration to the fact that an individual cannot sign as both a trustee and attorney.
If there is a dispute about the trustee lacking capacity, whether they should be replaced or if it would simply be detrimental to the trust property and beneficiaries for the incapacitated trustee not to be removed immediately, an application should be made to the COP under section 41 TA.
Trustee Act 1925 – section 54
Where there is no surviving capable trustee, an application cannot be made under section 36 and instead an application under section 54 TA needs to be made by the proposed new trustee. This situation commonly arises where there is a trust of land as a result of husband and wife owning the property, one dying and the survivor losing mental capacity. The trustee has a beneficial interest in the land, and they are the sole surviving trustee, but they lack capacity. Under section 54, the COP will make an order appointing replacement trustees and vesting the property.
Trusts of Land and Appointment of Trustees Act 1996
Where nobody has the authority or is willing to appoint a replacement trustee, and all beneficiaries of the trust are of full age and have capacity, they can give direction to the trustee to retire under section 20 Trusts of Land and Appointment of Trustees Act 1996. Once again, making the appointment by deed will ensure the trust property properly vests with the newly appointed trustee.
If there is any uncertainty surrounding the removal of a trustee, then it is advisable for an application to be made to the COP for an order authorising the removal and replacement of the trustee.
For more information
This article first appeared in STEP Journal, Vol 25, Issue 2. Click here to read the STEP Journal.
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