Monday, 3 September, 2018
The position of trustee isn’t an overarching generic term that refers to a specific role, but rather, a trustee can encompass a number of different types, all tasked with fulfilling certain duties and responsibilities depending on the trustee type.
Who is eligible to become a trustee?
Any person who has capacity to own property can undertake the role of trustee.
Beneficiaries also have the ability to act as a trustee, however, sole beneficiaries cannot hold the position of trustee because the position will cease to exist due to the merging of the separate, and equitable estate. Companies also have the capacity to act as trustees and are referred to as ‘corporate trustees’.
It should be noted that a trust is not invalid if a settlor decides to vest property with a person who has no legal capacity to become a trustee, because a trust cannot fail for want of a trustee due to equity. However, in such a situation, the courts can appoint another person as a trustee.
The form of trustees
The role of trustee can take a number of forms; starting with a trustee appointed by a settlor of a private or charitable trust, in accordance with either a trust instrument or trust deed. Trustees can also come into being via statutory trustee companies and the public trustee.
Trustee classification can also be influenced by the role to be undertaken and can include, bare, custodian, or advisory trustees – which can come into being by implication of law, such as the case of a resulting trust, or alternatively, by operation of law, which is the case in regards to a constructive trust.
How are trustees appointed?
The main ways in which a trustee can be appointed are through the express terms of a trust instrument, statute or by court appointment.
Trust instrument: trustees appointed by trust can be referred to as ‘original trustees’, and it’s not uncommon for the trust instrument to have provisions detailing when and how a trustee can be appointed.
Statutory power: in the absence of an express power of appointment in a trust instrument, statute allows for a trustee to be appointed, the circumstances in which the appointment can be made, along with the class of persons who can be appointed.
Court appointment: statute grants the courts power to appoint, remove or replace trustees if satisfied that such an action is in the best interests of the beneficiary, or necessary to advance the purposes of the trust. Courts will take into consideration the welfare of the beneficiary when making an appointment, and look into whether the trust property is safe. Finally, the trust property is to be executed in a way that will best serve the interests of beneficiaries.
Remember, a trust will not fail for want of a trustee.
What are the different types of trustees?
Public trustees: fulfil a number of functions that can involve administration of wills, small estates, or the estates of a person who lacks mental capacity.
Trustee companies: depending on the jurisdiction, trustee companies are to act within their statutory capacity as executors, and administrators of an estate. The overarching role of a trustee company is to invest and manage funds on behalf of their clients.
Bare trustees: holds trust property for the benefit and disposal for a beneficiary who is of age and capacity. Furthermore, the trustee must have no interest in the property beyond legal title, nor should they have any other duties to undertake outside of conveying upon demand to the beneficiaries, or per their instructions.
Custodian trustees: some jurisdictions make an allowance for custodian trustees to hold the trust property, and to deal with the property via managing trustees. Absent any specific provision, the trust instrument can allow for a custodian trusteeship that conforms to the terms expressed by a settlor.