A trustee of a family trust was diagnosed with dementia. Their GP confirmed that they no longer had the capacity to fully understand their role as a trustee. The other trustees were unsure what this meant for the Trust, and sought legal advice regarding removal of the trustee. 

Ensuring that all trustees are able to fulfil their duties to a Trust is critical to the function of a Trust. When a trustee loses capacity, or is no longer fulfilling their duties as a trustee, they will need to be removed as a trustee so that the Trust does not become dysfunctional or in breach of the law. 

The ability to remove and appoint trustees is a separate power to the role of trustee. 

What is Power of Appointment? 

The Power of Appointment is the power to appoint and remove trustees. The Power of Appointment is often held by the Settlor of the Trust, but it can be vested in any other person under the Trust Deed’s terms. 

This is a very important power, as the trustees have large amounts of discretion as to how they run the Trust and therefore choosing who they are will largely dictate how the trust will run on a day to day basis.

The Trust Deed will usually outline what happens to the Power of Appointment if the person nominated under the Deed passes away or has lost capacity to fulfil their role. Often this will pass to the executor of that person’s Will, or to someone nominated under the Will of the person holding the Power of Appointment. 

The Trusts Act 2019 provides that if there is no person recorded in the Trust Deed as having the power to remove trustees, then the remaining trustees will have the power to do so. 

If you hold the Power of Appointment for a trust it is important that you understand the process for passing on this role set out in the Trust Deed, including whether you need to make any provision for it in your Will. 

Appointing and Removing Trustees 

Under the Trusts Act 2019, the person who holds the Power of Appointment may remove a trustee in writing. The power to remove a trustee may be exercised in accordance with the grounds for removal in the Trust Deed, or for one of the specified grounds under the Trusts Act. 

Section 105 of the Trusts Act outlines optional grounds for removal of a trustee. The person holding the power of removal may remove the trustee where it is desirable for the proper execution of the trust, and one or more of the following grounds has been met: 

  • the trustee repeatedly refuses or fails to act as trustee:
  • the trustee becomes an undischarged bankrupt:
  • the trustee is a corporate trustee that is subject to an insolvency event:
  • the trustee is no longer suitable to hold office as trustee because of the trustee’s conduct or circumstances

Section 104 outlines grounds where the power to remove a trustee must be exercised. The grounds for compulsory removal are:

  • a trustee loses the capacity to perform the functions of a trustee; and
  • that trustee’s powers have not been delegated in a manner authorised by law or by the terms of the Trust.

If you are unsure who holds the Power of Appointment for your Trust, or how to exercise this power, it is important to seek legal advice from an expert in the area to ensure that you follow the correct process.  It is equally important to ensure you have adequately recorded what happens to that power after you pass away.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.