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Trustees - challenges of incapacity 2023

MITCHELL Aimee 2 ROSE Rebecca  
Aimee Mitchell
TGT Legal
Rebecca Rose
Bankside Chambers

Authors: Aimee Mitchell, Rebecca Rose
Published: 25 October 2023
Pages: 29


With an aging population and longer life expectancies, as well as increasingly complex family structures, capacity issues relating to trusts are becoming increasingly prevalent and problematic.

There is no automatic trigger at law that immediately fires a trustee or appointor when they lose capacity, even if that person’s property and personal affairs are subject to orders under the Protection of Personal and Property Rights Act 1988 (the PPPRA). The Trusts Act (Trusts Act) compels a holder of the powers of appointment and removal of trustees to remove a trustee who loses the capacity to perform the functions of a trustee.

But what is the measure of capacity? And what if the person holding the power to appoint and/or remove trustees is incapacitated?

Arden LJ observed in the English Court of Appeal decision of Bailey v Warren:

"Capacity is an important issue because it determines whether an individual will in law have autonomy over decision-making in relation to himself and his affairs. If he does not have capacity, the law proceeds on the basis that he needs to be protected from harm. Accordingly, in determining an issue as to an individual's capacity, the court must bear in mind that a decision that an individual is incapable of managing his affairs has the effect of removing decision-making from him. The decision is not made lightly...although no court should rush to interfere with the power of an individual who is competent to make decisions, it must not shirk the duty of intervening where an individual is not so capable and needs to be protected by the law. Finally, it should be noted that the law presumes that a person is competent."

The issues are even starker where an individual who has lost capacity is either a trustee or an appointor (or both) and has fiduciary duties. In that case, it is the beneficiaries (and perhaps the trustees as a whole) who may require protection from harm, liability, or prejudice.

Content outline

  • What is capacity?
  • When does a trustee or appointor lose capacity?
  • Ethical and practical issues when acting for trustee/appointor of questionable competence?
  • The role of health professionals
  • The need to remove a trustee of questionable competence and the risks of not doing so
  • What to do
  • How can you get around these pitfalls?
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