How to Handle a Rogue Trustee

The pros and cons of setting up a trust are often discussed when planning someone’s estate. However, depending on the size of a person’s estate, the benefits of creating trusts invariably outweigh the disadvantages as they can help to minimise Inheritance Tax (IHT), protect vulnerable dependents, or generally preserve an individual’s wealth for future generations.

That said, choosing or acting as a trustee is something everyone should take seriously. A Trustee’s role carries both great responsibility and authority. So in this context, it’s essential to understand what a trustee’s role involves and how a rogue trustee can be removed if they flout the rules by effectively turning rogue.

Trustee Duties

In a nutshell, a trustee must always act in the trust’s best interests and work with their fellow trustees and beneficiaries. If a trustee doesn’t, they can be prosecuted, and the penalties can be severe.

There’s a long list of obligations a trustee is subject to, but in brief, a trustee must:

• keep clear and accurate accounts and records
• treat all beneficiaries equally by acting impartially and without bias
• manage the trust to provide an income for the beneficiaries whilst preserving the capital value of the trust’s assets

But what happens if a trustee appears to abuse their position or acts irresponsibly?

Grounds for Removing a Trustee

There are several grounds for considering a trustee’s removal, including the following:

• Breach of trust– by not following the terms of the trust
• Uncooperative approach – by obstructing other trustees or refusing to respond to legitimate enquiries from beneficiaries
• Overcharging
• Bias – by favouring some beneficiaries over others
• Conflict of interest – by pursuing their interests in direct conflict with the interests of the trust
• Excessive charging – charging the trust excessive amounts for their services
• Failing to act appropriately – by making a poor investment decision or acting negligently.
• They are not exercising their discretion properly – by ignoring relevant information or the settlor’s wishes before exercising their discretion.

Death, mental incapacity, and absence are legitimate reasons for removal, but these usually fall into a different category than those listed above.

How to Remove a Rogue Trustee

A trustee’s roles, duties and powers are often explicitly found in the trust document. In addition, guidance is found in the Trustee Act 1925 and case law if the trust deed is silent. As you might expect, approaching removing a rogue trustee depends on individual circumstances.

Voluntary Resignation or Retirement

If a fellow trustee or beneficiary of the trust believes a trustee has acted unlawfully, they should first ask the trustee to resign voluntarily. If enough trustees are remaining, then the trustee can retire. Otherwise, a new trustee can be appointed before they step down.

Trust Deed or Document

If the rogue trustee refuses to resign, the next step is to refer to the trust’s documentation, which often grants express powers to remove trustees.  The rogue trustee can’t object or complain if the trust document is followed.

Removal by the Court

If there’s no specific reference in the trust deed about the removal of a trustee or there’s a disagreement between the other trustees and beneficiaries over a trustee’s removal, then an application (by trustee or beneficiary) can be made to the court to have the rogue trustee removed.

Removal Under Trustee Act 1925

Under the terms of section 36 of the Trustee Act 1925, trustees can be removed if they are dead, absent from the UK for over a year, have asked to be removed, refuse to act, or are unfit to act (for example due to mental incapacity).

Our Advice

Riling fellow trustees or beneficiaries isn’t enough to justify a trustee’s removal. Decisions trustees are often required to make often cause disappointment, so grounds for removal must be clear and evidenced. Reviewing the trust document is essential. And exhaust every option outside of applying to the Court first. Litigation isn’t for the faint-hearted!

Our specialist lawyers have years of experience advising beneficiaries and trustees in removal applications and helping those trustees who face claims. So, contact us today if you are concerned about how a trust is being managed or if you’re a trustee facing complaints and criticisms from beneficiaries about your actions. We’re here to help.

Please note that all views, comments or opinions expressed are for information only and do not constitute and should not be interpreted as being comprehensive or as giving legal advice. No one should seek to rely or act upon, or refrain from acting upon, the views, comments or opinions expressed herein without first obtaining specialist, professional or independent advice. While every effort has been made to ensure accuracy, Curtis Parkinson cannot be held liable for any errors, omissions or inaccuracies.

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