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Trusts: Trustees
Introduction:
This note discusses the meaning of a trustee and the capacity of a person to be a trustee, how he is appointed, how the trust property is vested in him, the requirement for multiple trustees to act together, and how trusteeship can be terminated.
Meaning of a Trustee:
This is a person to whom the trust property (which is the property of the settlor) is conveyed to be held in trust for the benefit of another (the beneficiary). In Black’s Law Dictionary, 9th ed., a trustee is defined as
One who stands in a fiduciary or confidential relation to another; esp., one who, having legal title to property, holds it in trust for the benefit of another and owes a fiduciary duty to that beneficiary
The settlor (owner of the property that is held in trust) can also be the trustee if he declares that he only holds the legal title to property on behalf of another person.
Capacity to be a Trustee:
Given that the legal title to the trust property is transferred to the trustee, a key requirement for one to be a trustee is the capacity to hold the legal title to the property being transferred. Generally, both natural persons and artificial persons, such as companies, can be trustees. On the latter, it has long been recognised that a company (or any body corporate) has all the powers of a natural person and has the capacity to hold property in its own name. In Morkor v. Kuma [1999-2000] 1 GLR 721, the Supreme Court said:
Save as otherwise restricted by its regulations, a company, after its registration, has all the powers of a natural person of full capacity to pursue its authorised business. In this capacity a company is a corporate being, which, within the bounds of the Companies Code, 1961 (Act 179) and the regulations of the company, may do everything that a natural person might do. In its own name, it can sue and be sued and it can owe and be owed legal liabilities.
In Soon Boon Seo v. Gateway Worship Centre [2009] SCGLR 281, the court again said:
In law, the members of a company have no direct proprietary rights over its assets, the company being the sole owner of its assets (see Majdoub & Co. Ltd. v. W. Bartholomew & Co. Ltd. [1962] 1 GLR 122).
Summarily, a body corporate, such as a company, can be a trustee.
A limitation on the capacity to be a trustee is imposed by the rule that all the beneficial interest and legal title cannot vest in only one person. The main effect of this rule is that a sole trustee cannot be a sole beneficiary, as the legal title will vest in him as sole trustee, and the beneficial interest will equally vest in him as sole beneficiary. In the case of Adamstoun Holdings Pty Ltd v Brogue Tableau Pty Ltd [2007] WASCA 43, Pullin J. advanced that:
The first observation which I make is that there is no trust involved in the [South] Trust. A trustee may be one of a number of beneficiaries but cannot be the sole beneficiary. If a trustee is the sole beneficiary, there is no trust because there is no separate equitable interest vested in the beneficiary. The legal and equitable interests merge into full ownership.
Also, the case of Re Cook [1948] Ch 212 is authority for the position that no trust can exist if the legal and equitable interest is vested in one person. However, it is valid for a sole beneficiary to be a trustee if there are other trustees. Here, while the beneficial interest is enjoyed by the sole beneficiary, the legal title of the trust property is held by multiple parties (including the sole beneficiary).
Appointment of Trustees:
Here, we discuss the persons that can appoint a trustee.
1. By Settlor:
The first trustee is appointed by the settlor. This is typically done in the instrument creating the trust, such as a will. For instance, the settlor/testator may provide in his will:
I give my land situated at East Legon, Plot No. 123, to Adnan, to hold in trust for Ziyaad.
With this, the settlor/testator would have effectively appointed Adnan a trustee of his land.
2. By the Court if Those Appointed Trustees Cannot Act as Trustees:
After a settlor has appointed a person as trustee, any of the following may happen:
In such cases, if the settlor fails to appoint another person to act as trustee during his lifetime, the court will usually appoint a trustee. In the United Kingdom, this power is expressly conferred on the courts by Section 41(1) of the Trustee Act, 1925, which reads:
The court may, whenever it is expedient to appoint a new trustee or new trustees, and it is found inexpedient difficult or impracticable so to do without the assistance of the court, make an order appointing a new trustee or new trustees either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee.
In particular and without prejudice to the generality of the foregoing provision, the court may make an order appointing a new trustee in substitution for a trustee who . . . [lacks capacity to exercisehis functions as trustee], or is a bankrupt, or is a corporation which is in liquidation or has been dissolved.
For instance, in Re Smirthwaite’s Trusts (1871) LR 11 Eq 251, a testator appointed three people as his trustees during his lifetime, but they all died before he did. He failed to appoint another testator, and there was an issue whether the court can appoint new trustees. The court held that it could, and that the trust will not fail simply because it did not have trustees prior to the court’s appointment.
Prior to the appointment of a trustee by the court, the personal representatives of the settlor will hold the property as constructive trustees. In the case of A-G v Lady Downing (1766) Amb 550, 552, this principle was stated as follows:
a devise to trustees doth not become void by the death of the trustees in the lifetime of the testator, but is good for the use, and the heir at law is considered as a trustee.
3. By Persons Authorised by the Settlor:
The settlor can also give the power of appointment of a trustee to another person. Usually, the settlor will appoint a trustee and give power to him to appoint additional persons as trustees. Even in the absence of express authorisation, existing trustees can appoint new trustees to replace old ones or to add to their number. In the UK, section 36 of the Trustee Act 1925 allows for the appointment of trustees if the appointed trustee is dead or remains outside the United Kingdom for more than twelve months. It reads:
(1)Where a trustee, either original or substituted, and whether appointed by a court or otherwise, is dead, or remains out of the United Kingdom for more than twelve months, or desires to be discharged from all or any of the trusts or powers reposed in or conferred on him, or refuses or is unfit to act therein, or is incapable of acting therein, or is an infant, then, subject to the restrictions imposed by this Act on the number of trustees,—
- the person or persons nominated for the purpose of appointing new trustees by the instrument, if any, creating the trust; or
- if there is no such person, or no such person able and willing to act, then the surviving or continuing trustees or trustee for the time being, or the personal representatives of the last surviving or continuing trustee;
By the Court of Equity in the Case of Constructive Trusts:
Where a constructive trust arises, the person who already has the property is said to be a constructive trustee for the owner of the property or his estate.
Vesting of Trust Property in the Trustees:
The legal title to the trust property is first vested in the settlor. For the appointed trustee to be able to administer the trust property, this legal property will have to be vested in him. There are various ways in which this can be done:
Usually, the settlor will convey the legal title to the trustee. But there may be such conveyance from existing trustees to a new trustee. This is because after the settlor transfers the title to the trustee(s), he no longer has it to transfer to a newly appointed trustee. That newly appointed trustee can only get title from existing trustees.
Also, a statute may provide that upon the occurrence of certain events, the property will automatically vest in some person (say the personal representative). See Section 40 of the Trustee Act, 1925. Also, if the trustee is a personal representative of the settlor, the property will be transferred to him by operation of law.
How Multiple Trustees Must Act:
Generally, a person cannot be forced to be a trustee. However, once he accepts to be a trustee, he must discharge the duties of a trustee, as stated in Moyle v Moyle (1831) 2 Russ & M 710. If there is only one trustee, that trustee takes all decisions regarding the trust property and discharges the duties of a trustee. Where there are multiple trustees, they are required to act together. In the case of Luke v. South Kensington Hotel Co. (1879) 11 Ch D 121, it was said:
There is no law that I am acquainted with which enables the majority of trustees to bind the minority. Th e only power to bind is the act of [them all].
Also, Petitt in “Equity and the Law of Trusts” advanced at page 402 that
Subject to any contrary provision in the trust instrument, only the joint exercise by trustees of their powers and discretions will be valid, and only a receipt by all of the trustees will give a good discharge to a purchaser. Accordingly, if one of two or more trustees enters into a contract to sell trust property, whether purporting to act as absolute owner, or on behalf of himself and his co-trustees (who have not authorized the sale beforehand and have refused to ratify it afterwards), the sale cannot be enforced against the trust estate.
This position reiterates the idea the that all trustees must act together to bind the trust estate.
Termination of Trusteeship:
Trusteeship may be terminated via any of the following modes:
These are now discussed.
1. Disclaimer as a Way of Terminating Trusteeship:
Where a person is appointed a trustee, he generally has two options:
These options flow from the understanding that “the law certainly is not so absurd as to force a man to take an estate against his will,” as stated in Townson v. Tickell [1819] 3 B. & Ald. 31.
If the appointed trustee refuses to act as trustee, he is said to have disclaimed the office of trustee, and there will, thus, be termination of the trusteeship via a disclaimer. In Black’s Law Dictionary, 9th ed., a disclaimer is defined as
A renunciation of one's legal right or claim; esp., a renunciation of a patent claim, usu. to save the remainder of the application from being rejected.
In the context of trusteeship, a disclaimer is a renunciation by a person who has been appointed as a trustee of the right to act as a trustee.
To effectively disclaim the trust, the trustee must do so prior to accepting, either expressly or impliedly, to be a trustee, as held in Re Sharman’s Will Trusts [1942] Ch 311. Put differently, a trustee cannot disclaim after accepting to be a trustee (he can only retire, which is a separate ground for the termination of trusteeship).
In discussing what will amount to acceptance of a trust, Pettit, in ‘Equity and the Law of Trusts’ at page 381, stated that
In general, any interference with the subject matter of the trust by a person appointed trustee will be regarded as an acceptance of the trust, unless it can clearly be explained on some other ground.
For instance, receiving rents from trust property with notice of the existence of the trust was held to amount to an acceptance of the trust in Conyngham v Conyngham (1750) 1 Ves Sen 522, 27 ER 1181.
2. Retirement as a Way of Terminating Trusteeship
The principle that a person cannot be compelled to be a trustee further gives rise to the idea that a person cannot be compelled to remain a trustee. After a person accepts to be a trustee and is no longer in a position to disclaim the trust, he can retire from the office of trustee. He may do so because the instrument creating the trust allows him to retire (either conditionally or unconditionally) or because he is requested to do so by one or more of the beneficiaries, among other reasons.
3. Death as a way of Terminating Trusteeship:
A trustee who dies ceases to be a trustee. What happens after the death of a trustee depends on whether he was a sole trustee or one of many. Where the trustee was a sole trustee, the trust property will become vested in his personal representatives, who can then administer the trust property. On the other hand, where the trustee is one of many, the other trustees simply continue to administer the trust. This is often due to the principle of the right of survivorship (jus accrescendi) that is characteristic of joint tenancy.
4. Removal as a way of Terminating Trusteeship:
A trustee may also be removed from office. This may be done by a court. In Section 11 of the Public Trustee Ordinance, 1952 (No. 24 OF 1952) of Ghana, it is provided that
The Court may remove a private trustee if the Court is satisfied that the continuance of the existing trustee in office may be detrimental to the execution of the trust notwithstanding that misconduct or maladministration has not been proved against him.
Beyond the power of the court to remove a trustee, a trust instrument may also provide grounds under which a trustee will be removed from office. Upon the occurrence of such grounds, the trustee may be removed from office.
Conclusion:
This note discussed the meaning of trustee, the capacity of a person to be a trustee, how trustees are appointed and assume control of trust property, and how trusteeship may be terminated. In a subsequent note, we will discuss the duties of a trustee.