Trust structures provide fertile ground for disputes, particularly those that are familial in nature. The authors of this article examine some of the conflicts that can arise with trusts.

Taking the role of trustee is an important one but not all trustees find the role one they can easily handle. What happens? To discuss such pressures, Ryan Mowat (partner) and Katherine Pymont (associate) in Kingsley Napley’s contentious trusts and probate team, examined the role of trustees and the present landscape. The editors of this news service are pleased to share these insights and invite readers to respond. They don’t necessarily endorse all the views of guest contributors. To contact the editor, email tom.burroughes@wealthbriefing.com

There are many different types of trusts - discretionary, charitable, offshore, living and testamentary, trusts for children and vulnerable people, trusts for non-UK residents, trust structures which are used to accumulate property and trusts for equity holdings. We could go on. A common feature is, of course, that they all require trustees, whether professional or family members, to protect the interests of the beneficiaries and ensure the trust meets its tax and legal obligations. 

Taking on the role of a trustee can be very rewarding but also at times extremely challenging. Difficulties can arise in any number of circumstances. A trustee may lack understanding as to the extent of his or her duties and run into difficulties as a result. Or there may be friction between co-trustees giving rise to an inability to properly carry out the role. Equally, the trustee may have adopted the role of middleman caught up in a vitriolic family dispute and find themselves having to deflect blows from all angles. In many cases, difficulties can be resolved but in some cases it is necessary that the trustee be removed.
Such removal may be the trustee's own decision, as the trustee is ready to retire and consequently willing and in a position to remove themselves, or removal might be against the will of the trustee in question necessitating action on behalf of a co-trustee or disgruntled beneficiary. There is no one-size-fits-all answer as to how deal with such circumstances. There are ways to remove a trustee without the court’s involvement and certainly litigation should always be a last resort but it is sometime unavoidable.

The first port of call should always be the trust instrument to ascertain whether an express power can be relied on in removing a trustee. This power might be vested in the settlor of the trust or delegated to a beneficiary or class of beneficiaries.

Voluntary retirement is also relatively straightforward using Section 39 Trustee Act 1925. In order for this provision to apply, the trustee must want to resign and there needs to be at least two co-trustees or a trust corporation remaining to perform the trust. The trustee needs to confirm his wish to be discharged by deed and his co-trustees must confirm, also by deed, that they consent to the retirement and that the trust property be vested in them. 

Compulsory retirement is another option under Section 19 Trusts of Land and Appointment of Trustees Act 1996, which allows for the removal of a trustee on the basis of the beneficiaries' unanimous consent, provided that the beneficiaries under the trust are of full age and capacity and (taken together) are absolutely entitled to the property subject to the trust. Minor beneficiaries or unborn potential beneficiaries are often what puts paid to reliance on this provision.

Where a trustee lacks capacity within the meaning of the Mental Capacity Act 2005, beneficiaries who are of full age and capacity and who are absolutely entitled to the property subject to the trust are able to agree unanimously to replace the trustee. The power under Section 20 Trusts of Land and Appointment of Trustees Act 1996 is only available in the instance that the trust instrument does not provide for the appointment of other trustees and does not exclude the power under the Act. The choice of replacement trustee under this provision is also limited.

A trustee who dies, or who is an infant, or who remains out of the United Kingdom for more than 12 months or who desires to be discharged may be replaced by another trustee under Section 36 Trustee Act 1925. This provision also allows for the replacement of a trustee in the instance that they are “unfit” or “incapable” but such terms leave open the possibility of challenge and for this reason are perhaps best left for the court to determine. Certainly, in the case of a trustee said to lack capacity it would be advisable to obtain a medical report to demonstrate incapacity and ensure that the report be available should the decision to replace the trustee subsequently become subject to a dispute.

Having exhausted consideration of the primarily non-contentious options, it may then be necessary to turn ones attention to the court’s remedies; statutory power of removal under Section 41 Trustee Act 1925 or by the court’s inherent jurisdiction. In either case the court's main guide is the welfare of the beneficiaries and the competent administration of the trust. For example, the court is likely to act to remove trustees who have abused their trust where there is evidence of positive misconduct and if the court is satisfied that the continuance of the trustee would prevent the trusts being properly executed. However, friction or hostility between the trustee and the beneficiaries is not, of itself, enough to have a trustee removed.

Trust structures provide fertile ground for disputes, particularly those that are familial in nature. Take for example, the oft reported dispute between property magnet Manny Davison and his wife Brigitta Davidson and their children Maxine and Gerald Davidson arising from two trusts settled by the former for the principal benefit of their children. The family is said to be worth around £600 million. Add in a rogue trustee who does not want to play ball and things can get very messy indeed. Trust disputes are on the rise and it is important for both trustees, beneficiaries and their advisers to be alive to the potential issues that might arise and how to deal with them. Seeking independent legal advice early is always recommended.