There may come a time in the duration of a trust that a trustee needs to retire. The law provides for the retirement of a trustee in those circumstances.
Voluntary retirement of trustees
A trust may contain an express right for a trustee to retire. If it does, the trustee’s retirement must be in accordance with these provisions.
If there is no express right to retire, section 39 of the Trustee Act 1925 provides trustees with a general right to retire. Section 39 permits the retirement of a trustee without a replacement being appointed, but only if at least two trustees (or a trust corporation) will remain as trustees. However, note that retirement of a trustee under section 39(1) can be set aside on the ground of undue influence by one of the parties to the retirement over another.
Where these conditions are not satisfied, a trustee may retire and be replaced under section 36 of the Trustee Act 1925. Note that the retirement of a trustee will not protect the trustee from liability for breaches of trust committed whilst still a trustee. The trustee will also be liable for breaches of trust committed after retirement, if the retirement was to facilitate a breach, or avoid liability for breach of trust.
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 even then – they could only be forcibly removed on grounds of incapacity or maladministration. However, where the beneficiaries are of age and legally competent, the courts have ruled that the trust beneficiaries can demand that the trust be brought to an end under a long-established rule in the 1841 case of Saunders v Vautier.
This means they can effectively remove the trustees and replace them by settling the property on new trusts. However, this can be both costly (including potential liability to additional tax) and inefficient, as it would require a transfer of the legal ownership of the trust property from the original trustees to the beneficiaries, and then from the beneficiaries to new trustees.
However, under the Trusts of Land and Appointment of Trustees Act 1996, the beneficiaries have a statutory power enabling them to require a trustee to retire in circumstances where they could have taken advantage Saunders v Vautier rule, to achieve the same result.
The beneficiaries may give a written direction to a trustee or trustees to retire from the trust. However, they can only do this if there is no person nominated to appoint new trustees by the trust instrument, and if the beneficiaries of the trust are of full age and capacity and, taken together, are entitled to the trust property. So, for instance, where there are minor beneficiaries, written direction to a trustee to retire cannot be given.
What happens when a trustee has been directed to retire by the beneficiaries?
The trustee will be required to execute a deed declaring their retirement, and will be deemed to have retired and will then be discharged from the trust. However, the trustee will only be required to retire if three conditions are satisfied:
- Reasonable arrangements have been made for the protection of any rights the trustee has in connection with the trust, eg. unpaid fees and expenses
- Following the trustee’s retirement, there will be either a trust corporation or at least two persons to act as trustees to perform the trust, and
- Either another trustee is to be appointed on his retirement, or the continuing trustees consent by deed to his retirement. If 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