Trustees have legal and fiduciary obligations to manage and protect trust assets and to act in the best interests of the beneficiaries.
When a Trustee loses mental capacity, they can no longer fulfil this duty, and steps should be taken to remove them from the role.
How this can be achieved will ultimately depend on the position of the co-trustees and the individual trustee who has lost capacity; our Wills, Trusts and Probate Lawyers explain more.
What is the first step that should be taken?
First, mental capacity needs to be ascertained.
Mental capacity is not black and white, and a dementia diagnosis (or similar) does not automatically mean that a person lacks mental capacity.
It would be prudent to conduct a mental capacity assessment.
If the trustee retains mental capacity to make the specific decision about whether they should continue to act as a Trustee, it would usually be appropriate for them to voluntarily step down from the role.
Generally, the trustee will be able to ‘retire’ from the role by executing a formal document known as a Deed.
Care should be taken to document the assessment of capacity within the Deed and ensure that a sufficient number of trustees remain in office.
It may be appropriate for the trustee to be replaced at the same time.
The Trustee lacks the necessary capacity. What should I do next?
If the Trustee does not have sufficient mental capacity to agree to step down, the next step is to look to the Trust Deed.
The Trust Deed may contain powers or provisions covering these circumstances and allowing a specific individual or the continuing trustees to remove or replace the trustee lacking capacity.
If the Trust Deed is silent on this, statutory law can assist. Section 36 of the Trustee Act 1925 allows for a Trustee to be replaced if they have lost mental capacity.
It is important to note that the trustee cannot simply step down and be removed, a replacement must step into their place.
Again, a Deed must be drawn up to deal with the change of Trustee.
What if the Trustee is also a beneficiary?
Extra care must be taken where the Trustee who lacks capacity is also a beneficiary of the Trust.
If the beneficiary has a specific interest in the Trust known as an ‘interest in possession’, it is not possible for the co-Trustees to remove them by relying on section 36 Trustee Act.
Instead, an application to the Court of Protection must be made for them to be replaced.
This will require providing background on the Trust, its assets, evidence of a capacity assessment and submitting a witness statement to outline the suitability of the proposed new Trustee.
Case Study A – Court involvement needed
Dad died in 2024. He left his share of a property to a Trust in his Will.
Mum was given a right to the income from the Trust and to live in the property rent free, granting her an ‘interest in possession’. Mum and Son are the Trustees.
Mum’s doctor has confirmed she does not have mental capacity. She is living in the property with carer support.
As Mum has an interest in possession in the Trust, Son cannot replace her using section 36. Son makes an application to the Court of Protection for Mum to be removed and to be replaced with Daughter.
Case Study B – Court not needed
Dad died in 2024. He left £325k to a discretionary trust. Mum, Son, Daughter and grandchildren were potential beneficiaries of the Trust. Mum and Son are the Trustees.
Mum’s doctor has confirmed she does not have mental capacity.
Mum does not have an interest in possession. Her entitlement is at the Trustees discretion.
Son can replace Mum as trustee with Daughter by Deed.
How can I avoid needing to apply to the Court of Protection in the future?
It should be considered how suitable a Trustee is whenever they are appointed to ensure they are capable of fulfilling the role.
Often, an individual who is elderly, has cognitive or memory problems or is otherwise unwell is unlikely to be a suitable choice.
The Trustees should consider the continuance of all trustees at least annually. As circumstances change, it may be appropriate to adjust the Trustees acting in light of this.
Any application to Court is much more onerous than drawing up a Deed.
It also costs significantly more and takes considerably longer. Therefore, it is well worth spending the time to keep the Trustees under review and incurring the costs of executing the Deed to change the Trustees whilst you still can.
Contact Our Trust Solicitors
If you would like more information on how to change Trustees, please do not hesitate to get in touch with our Trust Lawyers.
Our Solicitors are trained in dealing with vulnerable people or those who have conditions such as the early stages of Alzheimer’s.
0161 941 4000
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Hannah Owens
Associate
Hannah has 2 years of experience acting as a Wills, Trusts, and Probate solicitor. Hannah assists clients in dealing with taxable estates including cross-border estates, Trusts and estate planning, as well as advising on Court of Protection applications and Powers of Attorney.
About Hannah Owens