A person must have legal capacity to act as a trustee. Under Trustee Act 1925 s.39(1), a trustee must be over 18 years of age and of sound mind. These requirements exist to ensure that trustees are capable of understanding and carrying out their fiduciary obligations. A minor (under 18) cannot be a trustee of land, though they may hold a bare trust of personal property in limited circumstances. A person lacking mental capacity cannot validly act as trustee, as they cannot understand the nature and consequences of their duties.
No person who is a minor shall be capable of being a trustee of land, and a person shall not be capable of being a trustee of a settlement, other than a trust for sale, if he is a minor.
The maximum number of trustees of land of any trust or power shall be four, and where more than four persons are named as trustees, the four first named who are willing and able to act shall be the trustees.
The Trust Corporation Act 1925 enables certain public bodies and companies to act as trustees. A trust corporation is defined under the Trustee Act 1925 s.68(18) and includes the Public Trustee, the Official Solicitor, and corporations authorised by their constitutions to act as trustees (such as banks and trust companies). Trust corporations have several advantages: they have perpetual existence (they do not die), they have professional expertise, and they can act as a sole trustee of land (unlike individuals, who normally need at least two for land).
A person cannot be compelled to act as a trustee against their will. Trusteeship is a voluntary office, and a person nominated as trustee may decline. However, once a person accepts the role, they cannot simply abandon it without proper procedures (retirement under s.36 or removal by the court). A trustee who wishes to retire must follow the statutory retirement procedure; they cannot simply walk away from their obligations.
The most common method of appointing trustees is by the settlor in the trust instrument (the trust deed or will). The settlor names the initial trustees and often provides a mechanism for appointing replacement trustees. The settlor may appoint themselves as a trustee, though this creates potential conflicts of interest. The settlor may also name a "nominated person" who has the power to appoint new trustees.
Where a trustee, either original or substituted, and whether hereditament or personal estate is comprised in the trust, desires to be discharged from his trust, and his co-trustees and such other person (if any) as is empowered to appoint new trustees by deed, declare their consent to the discharge of the trustee desiring to be discharged, they may nominate by deed a new trustee or new trustees to act in the place of the trustee so desiring to be discharged.
Under s.41 of the Trustee Act 1925, the court has power to appoint new trustees where it is "expedient" to do so. This power is discretionary and may be exercised in various circumstances: where a trustee has died or been removed, where there is no trustee willing or able to act, where additional trustees are needed (e.g., for the proper administration of the trust), or where a trustee is abroad and unable to act effectively. The court may appoint whoever it considers fit, and the person appointed need not consent in advance.
In Saunders v Vautier (1841), the Court of Chancery established the principle that where all beneficiaries are absolutely entitled, of full age and capacity, and together absolutely entitled to the trust property, they may require the trustees to transfer the trust property to them, even if this terminates the trust before the time specified by the settlor. This means beneficiaries who are absolutely entitled can effectively appoint themselves as trustees by demanding transfer of the legal title. This rule does not apply where there are minor or unascertained beneficiaries, or where the trust includes discretionary elements.
Remember that only four trustees can hold legal title to land at any one time (LPA 1925 s.34(2)). If five or more are named, the first four willing and able to act will be the trustees. This rule is important for SQE1 because questions may ask what happens when more than four trustees are named in a trust instrument.
Where a trustee has been guilty of a breach of trust ... or is incapable, or is a bankrupt, or is a corporation within the meaning of the Companies Act 2006 in liquidation, or where 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, the court may nominate a new trustee or new trustees.
Under s.41 of the Trustee Act 1925, the court may remove a trustee in circumstances including: where the trustee has been guilty of a breach of trust, where the trustee is incapable of acting, where the trustee is an undischarged bankrupt, where a corporate trustee is in liquidation, or where it is expedient to appoint a new trustee. The court exercises its discretion and will consider the interests of the beneficiaries, the conduct of the trustee, and whether the trust can be properly administered with the current trustees.
The court's inherent jurisdiction to remove trustees is wider than the statutory power under s.41. The inherent jurisdiction exists quite independently of statute and can be exercised even where no breach of trust has occurred. The leading case is Letterstedt v Broers (1884), where the Privy Council established that the court may remove a trustee where there is friction or hostility between trustees that prevents the proper administration of the trust, or where the trustee's conduct endangers the trust property. The court's primary consideration is the welfare of the beneficiaries.
A trustee may retire under s.36 of the Trustee Act 1925 by deed of retirement. The requirements are: the retiring trustee must desire to be discharged; the continuing trustees and any person with power to appoint new trustees must consent; and a replacement trustee must be appointed (unless the trust instrument provides otherwise). After retirement, the outgoing trustee is discharged from liability for acts of the continuing trustees but remains liable for their own acts during their period of trusteeship.
| Circumstance | Legal Effect | Key Reference |
|---|---|---|
| Death | Trusteeship ends automatically; estate not liable for post-death breaches | Trustee Act 1925 |
| Bankruptcy | Trusteeship ends automatically for individual trustees | Insolvency Act 1986 |
| Mental incapacity | Trustee can no longer act; replacement needed under s.36 or s.41 | Trustee Act 1925 s.41 |
| Corporate liquidation | Corporate trustee can no longer act | Trustee Act 1925 s.41 |
| Disqualification by court order | Trustee removed by court for breach or misconduct | s.41 Trustee Act 1925 |
Trustee expresses desire to retire by deed
Continuing trustees consent to the retirement
Any person with power to appoint new trustees consents
New trustee(s) are nominated by deed of retirement
Retiring trustee is discharged from future liability (but retains liability for own past acts)
Whenever the duty under this subsection applies to a trustee, he must exercise such care and skill as is reasonable in the circumstances, having regard in particular — (a) to any special knowledge or experience that he has or holds himself out as having, and (b) if he acts as trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession.
The standard of care under s.1 of the Trustee Act 2000 is that of a "prudent man of business" — what a reasonably prudent individual of business would do in managing their own affairs. This is an objective standard, but it is modified by two important factors. First, if a trustee has special knowledge or expertise (or holds themselves out as having such expertise), they will be held to a higher standard reflecting that expertise. Second, if a trustee acts in the course of a business or profession (e.g., a solicitor or accountant acting as trustee), they are held to the standard reasonably expected of a professional in that field.
A professional trustee (such as a solicitor, accountant, or bank) will be held to a higher standard of care than a lay trustee. If a solicitor acts as trustee, they are expected to exercise the skill and care of a reasonably competent solicitor. Similarly, if a lay trustee holds themselves out as having financial expertise, they will be judged by that claimed expertise. This distinction is frequently tested in SQE1 questions.
(1) Subject to the provisions of this Part and to any provision of the trust, a trustee may make any kind of investment that he could make if he were absolutely entitled to the assets of the trust. (2) This section does not authorise a trustee to make investments that are restricted by the trust instrument.
The Trustee Act 2000 fundamentally reformed trustee investment powers. Under s.3, trustees have a very wide power to make any kind of investment that an absolute owner could make. This replaced the old restrictive lists of authorised investments under the Trustee Investments Act 1961. Trustees can now invest in stocks and shares, property, unit trusts, OEICs, and other investments. However, the power is subject to the standard investment criteria (s.4), the duty to review investments (s.5), and the requirement to obtain proper advice (s.5). The trust instrument may restrict or modify these powers.
(1) In exercising any power of investment, whether arising under this Part, the trust instrument or otherwise, a trustee must have regard to the standard investment criteria. (3) "The standard investment criteria", in relation to a trust, means — (a) the suitability to the trust of investments of the same kind as any particular investment proposed to be made or retained, and (b) the need for diversification of investments of the trust, in so far as is appropriate to the circumstances of the trust.
| Criterion | What It Means | Practical Implication |
|---|---|---|
| Suitability | The investment must be suitable having regard to the trust's purposes and beneficiaries | A high-risk investment may be unsuitable for a trust intended to provide steady income for vulnerable beneficiaries |
| Diversification | Trustees must not put all eggs in one basket — investments should be spread | Holding only one type of asset (e.g., all property) may breach the duty unless justified by the circumstances |
Under s.5 of the Trustee Act 2000, trustees must: (1) review the investments of the trust from time to time; and (2) obtain and consider proper advice about the way in which the trust assets should be invested, whether they should be varied, and the suitability of any proposed investment. "Proper advice" means advice from a person who is reasonably believed by the trustees to be qualified to give it by their ability in and practical experience of financial and other matters relating to the proposed investment. Trustees are not bound to follow the advice, but they must consider it. If they decide not to follow it, they must have good reason for doing so.
For SQE1, be aware that the old Trustee Investments Act 1961 restricted trustees to a narrow range of investments and required a split between "narrower-range" and "wider-range" investments. The Trustee Act 2000 replaced this with a single, wider power subject to the standard investment criteria. Most SQE1 questions will be based on the current law under the 2000 Act, but you may be asked to identify the correct statutory provision.
Under s.31 of the Trustee Act 1925, trustees have a statutory power to apply the income of a trust for the maintenance, education, or benefit of a minor beneficiary (a person under 18 who is entitled to the income of the trust in possession). "Maintenance" is broadly interpreted and includes provision for the reasonable needs of the minor, including food, clothing, housing, and education. The trustees must have regard to the age of the child and their requirements, and the standard of living they would have enjoyed had the parent been alive. The power is discretionary — trustees are not obliged to exercise it, but they must consider it.
Where any property is held by trustees in trust for any person for any interest whatsoever, whether vested or contingent, then, subject to any prior interest or charge, the trustees may, at their sole discretion, pay to or apply for or towards the maintenance, education, or benefit of that person, the whole or any part of the income of the property during the minority of that person, or may accumulate all or any part of such income.
Under s.32 of the Trustee Act 1925, trustees have a statutory power to apply capital of the trust for the benefit of a beneficiary. The default limit is one-third of the beneficiary's presumptive share of the capital (i.e., what they would receive if the trust were wound up immediately). However, this limit can be increased to the entirety of the beneficiary's share if the trust instrument provides, or if all the beneficiaries who would be affected consent. The power is intended to allow trustees to meet the capital needs of beneficiaries during the currency of the trust (e.g., buying a house, funding university fees, or helping a beneficiary start a business).
| Feature | Maintenance (s.31) | Advancement (s.32) |
|---|---|---|
| Source of funds | Trust income only | Trust capital only |
| Beneficiary | Minors (under 18) entitled to income in possession | Any beneficiary (no age restriction) |
| Default limit | No fixed monetary limit — based on "reasonable needs" | One-third of the beneficiary's presumptive share |
| Can the limit be increased? | Not applicable | Yes, by trust instrument or consent of all affected beneficiaries |
| Nature of power | Discretionary — trustees need not exercise it | Discretionary — trustees need not exercise it |
Trustees can apply both income (s.31) and capital (s.32) for the benefit of the same beneficiary, but they must keep track of what has been applied under each power. An advancement under s.32 may be taken into account when calculating the beneficiary's presumptive share for future advancements. Trustees must also consider the interests of other beneficiaries — they cannot favour one beneficiary to the detriment of others.
Under s.11 of the Trustee Act 2000, trustees may delegate any of their functions to an agent, except the duty to decide: (a) whether any asset should be held as part of the trust's investments; (b) whether an investment should be realised; (c) what the trust's investment policy should be; or (d) whether trustees should act on advice given to them. Delegation is subject to the duty of care — trustees must select agents with reasonable care and skill, and must keep the delegation under review. Trustees remain ultimately responsible for the acts of their agents. The power to delegate cannot be excluded by the trust instrument.
Subject to the following provisions of this Part, trustees may authorise any person as their agent to exercise on their behalf any of their functions (other than — (a) any function relating to the distribution of the trust assets, or (b) any power to delegate any of their functions, or (c) any power to appoint a person to act as a nominee or custodian, or (d) any function to which this section does not apply by virtue of subsection (1A)).
Under s.34 of the Trustee Act 2000, trustees may insure trust property against any risk of loss or damage, and pay the premiums out of the trust income or capital. The power extends to any property which is subject to the trust, including land, buildings, and valuable chattels. Trustees must act prudently in deciding whether to insure, what level of cover to obtain, and whether to pay premiums from income or capital. The trust instrument may modify or exclude this power, but unless it does, trustees have a broad discretion. This power replaced the much narrower common law position.
Under s.28 of the Trustee Act 2000, trustees have the power to acquire freehold or leasehold land in the United Kingdom for any purpose, including as an investment or for occupation by a beneficiary. This is a broad power that enables trustees to purchase property that a beneficiary can live in, subject to the standard investment criteria. The trustees may permit a beneficiary to occupy trust property, but must not do so on terms that are more favourable than would be commercially reasonable (s.12). If a beneficiary occupies trust property, they may be required to pay rent or other charges.
For SQE1, remember that trustees can delegate the carrying out of decisions but not the making of core decisions. They can delegate to an agent the management of an investment portfolio, but they cannot delegate the decision of what the overall investment strategy should be. Trustees remain liable for their agents' failures. This distinction between delegable and non-delegable functions is a common exam topic.
When a beneficiary occupies trust property, trustees must ensure the arrangement is on proper terms. The beneficiary should normally pay a market rent unless the trustees have good reason to allow occupation rent-free (e.g., where the trust instrument permits it or where the beneficiary is the sole beneficiary). Allowing a beneficiary to occupy trust property on unduly favourable terms may constitute a breach of trust to the detriment of other beneficiaries.