Removing A Trustee From a Trust

There are various circumstances in which the need to remove a trustee from a trust may arise, including for practical reasons (such as replacement following death or retirement). In other cases, trustee removal and appointment is an important mechanism for upholding the proper administration of the trust. Applications to the court to remove a trustee are often set in the context of disagreement between those connected to the trust, for example when there is friction or hostility between beneficiaries and trustees.

This article provides an overview of the means by which a trustee might be removed, as a starting point for individuals and professionals who are involved with trusts.

Provisions of the trust instrument

One way to remove a trustee is to rely on an express provision in the trust instrument. This provision may either be a power of removal, or a provision for the automatic removal of a trustee. It is more common for powers of removal to be included in the instruments of offshore trusts (such as in Jersey, Guernsey, BVI or Bermuda trust deeds) – and the power to remove the trustee will often be given to the protector of the trust.

If the protector (or a settlor) has an express power to remove trustees – but does not have any beneficial interests under the trust – then the power is normally fiduciary. This means that when considering their power to remove a trustee, the proposed removal must be with the best interests and the benefit of the beneficiaries in mind.ⁱ  

To exercise removal, the terms of the trust instrument should be construed to determine the proper procedure. For example, in what circumstances, how, and by whom. It may include provisions as to who has the power to appoint, replace, and/or remove trustees, and how this should be done.

If there are no express powers or provisions dealing with removal of trustees within the trust instrument (or they are limited), it may be necessary to look at statutory powers to change the trustee.

Statutory Powers of Trustee Replacement

Trustee Act 1925

The Trustee Act 1925 sets out certain provisions for the regulation of trustees' powers and appointment. It includes statutory provision for the replacement of the trustee of a trust.

Section 36 Trustee Act 1925

In England and Wales, section 36 Trustee Act 1925 is a way of replacing a trustee out of court. It is not in itself a power of removal but confers a power to replace a trustee (by appointing a new one). The power may be exercised in the following circumstances:

• when a trustee has passed away;
• if a trustee has been outside of the UK for more than 12 months;
• where a trustee wishes to be discharged from its duties (as trustee) – perhaps because they wish to retire;
• if a trustee refuses to act or is unfit or incapable of acting – most likely relating to mental incapacity, age, and/or infirmity; or
• where a trustee has been appointed who is not over 18 years of age.

The power must be exercised in writing and by either those expressly named in the trust instruments with the power to appoint new trustees or by the surviving/continuing trustees (or their personal representatives).

Section 41 Trustee Act 1925

Section 41 Trustee Act 1925 is a statutory power for the court to intervene and appoint a new trustee/new trustees, when specific circumstances arise. Again, this applies in respect of replacing a trustee, rather than outright trustee removal.

The court will only put into effect the replacement of a trustee under section 41 if the following two conditions can be satisfied: (1) It is expedient to appoint a new trustee or new trustees, and (2) It is inexpedient, difficult, or impracticable to do so without the assistance of the court.

The court may order the replacement of a trustee under this section in the following circumstances:

• when a trustee lacks capacity to fulfil their duties;
• if a trustee is deemed bankrupt; and
• where a trustee (that is a corporation) is in liquidation or has been dissolved.

It is only appropriate for a trustee or beneficiary of the trust in question to make a claim under section 41 Trustee Act 1925. Such an application should only be made if there is no other mechanism to accomplish removal.

The Court’s Inherent Jurisdiction to Replace or Remove a Trustee

The court also has an inherent jurisdiction to replace or remove a trustee (although it will not remove a trustee without a replacement if there is not a sufficient number of trustees remaining, should the removal in question take place). Ordinarily, there should be at least two trustees of a trust, but the trust instrument may set out a minimum or maximum number of trustees.

Can a beneficiary remove a trustee?

Removal of a trustee by the court may be sought by a beneficiary of the trust or by another trustee of the trust who has standing to seek relief for breach of trust.

Will the Court intervene?

Following an application to remove a trustee, when considering whether to exercise its inherent jurisdiction, the court’s primary focus is the welfare of the beneficiaries of the trust. The court will also consider the proper administration of the trust, and the protection of trust property.ⁱⁱ Other influential factors might include the fact that the settlor (or testator in the context of a will trust) has chosen particular trustees for the trust.

The court is likely to exercise its inherent jurisdiction to remove a trustee if they have positively abused their position and any misconduct has been dishonest, disloyal, or jeopardised the trust property.

While the court may take into account the beneficiaries’ views, hostility or antagonism between beneficiaries and the trustee(s) alone may not amount to a cause for removal. However, where the relationship between the beneficiaries and the trustee is such as to adversely affect or impede the trustee’s ability to duly perform its duties, the court may deduce that removal is the appropriate course of action for the welfare of the beneficiaries.

In Long v Rodman, Chief Master Marsh emphasised that the court’s discretion to remove a trustee (or as was the case, an executor) is to be exercised in a pragmatic way.ⁱⁱⁱ The Master referred to the case of Harris v Earwicker to outline the principles to be applied when the court exercises its inherent jurisdiction:

• the guiding principle is the proper administration of the trust and the welfare of the beneficiaries and it is unnecessary for the court to find wrongdoing or fault. If there is wrongdoing or fault that may jeopardise the estate, the court is more likely to exercise its power of removal;
• the wishes of the testator (or settlor), as reflected in the will (or trust documents) will be a factor that is taken into account. The wishes of the beneficiaries may also be relevant. However, even where the views of the beneficiaries are unanimous, there is no right to demand replacement and the court will consider the interests of the beneficiaries as a whole;
• the court will consider whether it has become impracticable (or impossible) for the personal representative/trustee to carry out the estate/trust’s administration;
• the court will consider the additional cost involved in replacing the trustee and take into account the size of the estate and scope of work involved.^iv 

As summarised in the case of Schumacher v Clarke: “the administration of an estate or a trust can often lead to tension and indeed feelings often run high. It is essential for the court to avoid as far as possible providing a forum for the parties merely to vent their complaints about each other. The core issue is whether the continuation in office of one or more parties is detrimental to the interests of the beneficiaries.”^v

Breach of Trust

Trustees owe duties of skill and care in their administration of the trust and must exercise such skill and care as is reasonable in all the circumstances.

A trustee may be in breach of trust if they fail to comply with the terms of the trust or act in breach of their trustee duties.

Circumstances that might amount to a breach of trust include, but are not limited to, the mismanagement of trust assets, distributing assets to a beneficiary who does not have any right to them, or self-dealing.

What happens when there is a breach of trust

In the event of a trustee being in breach of trust, an application may be made to the court for their replacement, or in extreme circumstances for an injunction to prevent the trustee from taking further action in relation to trust assets.

The court will consider what a reasonably prudent trustee would have done in those circumstances.^vi If the court decides that a trustee has breached their duty, they may be personally liable to compensate the trust fund for any loss caused by their actions. 

It should be noted that in the context of discretionary trusts, the court will not intervene with a trustee’s exercise of discretion if the trustee has acted bona fide (within their powers) – even if the court would have acted differently.^vii

In the case where a claim for removal of a trustee forms part of the relief sought by breach of trust action, the position as to costs will be governed by the general principles of breach of trust actions. Accordingly, the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party.

Conclusion

Overall, the need to remove a trustee may arise in a number of scenarios. The mechanism by which the trustee can be removed will depend on those circumstances and specialist legal advice should be sought.

Our Expertise

We specialise in handling all varieties of domestic and international disputes for private individuals, family businesses, trustees (both individuals and trust companies) and other fiduciaries, such as executors, protectors, deputies and attorneys. We pride ourselves on being able to provide practical, long-term solutions that meet our clients’ needs. For more information, please contact Emma Johnson in our relationships team.

ⁱ IRC v Schroder [1983] STC 480
ⁱⁱ Letterstedt v Broers (1884) 9 App. Cas 371
ⁱⁱⁱ Long v Rodman [2019] EWHC 753 (Ch)
^iv Harris v Earwicker [2015] EWHC 1915 (Ch)
^v Schumacher v Clarke [2019] EWHC 1031 (Ch)
^vi Wight v Olswang (No 2) [2000] 12 WLUK 146
^vii Gisborne v Gisborne (1877) 2 App. Cas. 300