Retirement of trustees

Voluntary retirement of trustees

Once a trustee has been appointed and has taken up his office, he may subsequently wish to retire from the trust. Although it is possible for the trust to contain an express power permitting retirement, s 39 of the Trustee Act 1925 provides a general power which is usually adequate:

‘Where a trustee is desirous of being discharged from the trust, and after his discharge there will be either a trust corporation or at least two individuals to act as trustees to perform the trust, then, if such trustee as aforesaid be deed declares that he is desirous of being discharged from the trust, and if his co-trustees and such other person, if any, as is empowered to appoint trustees, by deed consent to the discharge of the trustee, and to the vesting in the co-trustees alone of the trust property, the trustee desirous of being discharged shall be deemed to have retired from the trust, and shall, by the deed, be discharged therefrom under this Act, without any new trustee being appointed in his place.’

This provision permits the retirement of a trustee without a replacement being appointed, but this will only be possible if at least two trustees or a trust corporation remain. Where these conditions are not satisfied, a trustee may retire and be replaced under the power contained in s 36 of the Trustee Act 1925. Retirement will not protect a trustee from liability for breaches of trust that he committed whilst he was a trustee, and he will be liable for breaches of trust committed after his retirement if he retired to facilitate those breaches.

Compulsory retirement of trustees at the direction of the beneficiaries

Historically, trustees could not be forced to retire by the beneficiaries of a trust, no matter how much the beneficiaries may have wished to have them replaced, and they could only be forcibly removed on grounds of incapacity or maladministration. However, where the beneficiaries are of age and legally competent it has been seen that they can demand that the trust be brought to an end under the rule in Saunders v Vautier, (1841) 4 Beav 115.

If they wish they could therefore effectively remove the trustees and replace them by settling the property on new trusts. However, this process may be both costly (including potential liability to additional tax) and inefficient, as it requires a transfer of the legal title to the trust property from the original trustees to the beneficiaries, and then from the beneficiaries to the new trustees. The Trusts of Land and Appointment of Trustees Act 1996 therefore introduced a new statutory power enabling the beneficiaries of a trust to require a trustee to retire in circumstances where they could have taken advantage of the rule in Saunders v Vautier to achieve the same result.

By s 19(2)(a) the beneficiaries of a trust may give a written direction to a trustee or trustees to retire from the trust. This right is only exercisable if there is no person nominated for the purpose of appointing new trustees by the trust instrument, and if the beneficiaries of the trust are of full age and capacity and, taken together, are absolutely entitled to the property subject to the trust. This means that the right to direct retirement will not be available where there are infant beneficiaries of the trust, which will often be the case in respect of a discretionary trust. Where a trustee has been directed to retire by the beneficiaries s 19(3) provides that he will be required to make a deed declaring his retirement and shall be deemed to have retired and be discharged from the rust. However, he will only be required to retire if three conditions are satisfied.

The three conditions

The three conditions are as follows: (i) reasonable arrangements have been made for the protection of any rights he has in connection with the trust (S 19(3)(B), this would include for example, unpaid fees and expenses); (ii) after he has retired there will be either a trust corporation or at least two persons to act as trustees to perform the trust (S 19(3)(c), this is consistent with s 39 of the Trustee Act 1925) and (iii) either another person is to be appointed a new trustee on his retirement, or the continuing trustees consent by deed to his retirement (S 19 (3)(d), in the event that the co-trustees refuse to consent to the retirement directed by the beneficiaries the only means of removal of the trustee will be by order of the court exercising its jurisdiction under s 41 of the Trustee Act 1925).

The power to compulsorily retire trustees under s 19 thus enables the beneficiaries to defeat the intentions of the settlor, who may have intended that a specific individual act as trustee. This ability to undermine the settlor’s express intentions is the inevitable consequence of the rule in Saunders v Vautier. However, a settlor can expressly exclude the right to compulsory retire trustees under s 19, and in reality a standard exclusion may be utilized in express trusts so that the provision will only be applicable in respect of resulting and constructive trusts, especially of the family home. Where trusts have come into existence before the commencement of the Act, the power to direct retirement can be excluded by the execution of a deed to that effect by the settlor, or surviving settlors, who created the trust. If such a deed is executed, it is irrevocable in effect.