How to deal with a Trustee of declining mental capacity – Part 2

Whilst it can reasonably be said that the trustee with waning mental capacity can understand that they are a trustee, and what that may entail, and can understand that they are able to step down as a trustee, it is better to give instructions for a Deed of Retirement of a Trustee to be drafted and executed, a relatively simple and hence inexpensive deed to have drafted.

If the retirement is going to take the number of trustees below two in number, then it would be advisable, given that the trust is holding an interest in land, for a new trustee to be appointed, and that can take place in the same deed that retires the retiring trustee.

It is worthwhile noting that this is a particular problem with life interest trusts, and those are often found as part of a Will coming into being on the death of the person whose Will they are contained in. Life interest trust Wills have long been used with blended families so as to ensure the twin objectives of:

• A roof is kept over a surviving spouse’s head, together with a continuing income stream; and
• So as to ensure that the deceased’s children from a previous marriage etc, see benefit ultimately, albeit postponed until the date of their step-parent’s death.

It prevents the step-parent, if they have outright ownership on the deceased’s assets, from being able to direct them to beneficiaries of their own choosing, whether during the remainder of their life or thereafter by their own Will or the operation of intestacy.

Life interest trust Wills are also often in place as a legitimate way of protecting some value from possible exposure to long term care costs, and so we are seeing an upswing in their popularity and use, and so these sorts of issues are becoming much more widespread.

It is important to note that if what you have is not a life interest trust but something else, like a discretionary trust, then this issue is not such an issue where one has a mental capacity waning trustee, as there is the saving nature of section 36(9) of the Trustee Act 1925 which outlines the powers related to the appointment and removal of trustees. It allows for the appointment of new trustees when an existing trustee is unable to act due to various reasons, including death, incapacity, or refusal to act.

However, section 36(9) is of no use where one has a life interest trust and it is the life tenant who is also a trustee who has lost mental capacity, so do not be lulled into thinking the section is a universal solution to the problem.

If you or your family are faced by this issue and the step to retire the trustee with waning capacity has not been taken but no longer has mental capacity objectively, then the only option will be an application to the Court of Protection. Whilst we can assist with that, it is far more costly than anything else mentioned in this piece and takes a far longer time period by reason of the fact that it is a court process.

Whether it is an examination as to whether a Deed of Retirement and Appointment of a new Trustee is an appropriate solution or whether it is a Court of Protection application to remove an incapacitated trustee, please contact Edward Walter 01892 502 320 ewalter@bussmurton.co.uk or Annelise Tyler 01892 502 398 atyler@bussmurton.co.uk for more information.