Fit for purpose

Last year I was appointed as panel deputy to manage the financial affairs of a husband and wife. Both had lost capacity. Their main asset is a property, which has proved to be surprisingly desirable, attracting several offers.

From a practical perspective, the orders that appointed me were not entirely helpful. Both orders contain the same restriction with regards to selling property, namely:

"The deputy must not sell, charge or otherwise dispose of any freehold or leasehold property which [Mr/Mrs] owns jointly without obtaining a further order from the court replacing him/her as trustee of the property."

I am currently in the process of obtaining the relevant order and getting new trustees appointed to act alongside me in the sale, but this issue of what happens when trustees lose capacity can be a knotty problem with a number of variations to be considered. Always remember the fact that mental incapacity does not automatically discharge a trustee from their position, and does not stop the trust assets from vesting in their name.

The starting point should always be: "Is the client a trustee?"

Obvious, yes, but the fact that property owners are also trustees is often missed, and this can lead to problems in itself if the only deputy or attorney is also the co-owner of the property. Applying for a deputy to be appointed, only to have to advise them at the end of that process that a further Court of Protection application is required to appoint a new trustee, is never going to impress your client.

The next question to ask is: "Does the client lack capacity to retire?"

Another obvious one, but even where a deputy has been appointed due to the client's inability to manage their financial affairs, it doesn't mean they can't retire. Whether or not they have the requisite capacity to do this will always rest on the facts of the case in question.

Finally, you need to know whether there is an EPA or LPA in place, or a deputy appointed, as this can influence the route chosen to resolve the issue.

Having identified that you have a client who is a trustee and who lacks capacity, you can then get in to the nitty-gritty of how to remove them, replace them and vest the trust assets appropriately. This could be the basis of a textbook in itself, but some of the important points to clarify are as follows.

Who has the power of appointment? The incapable trustee or another trustee?

If the power of appointment is expressly conferred on the incapable trustee, then an order of the Court of Protection under section 18(1)(j) MCA 2005 will be required to allow that power to be exercised.

Are there any other trustees who are able to act?

If there are, they would be able to apply to the Court of Protection for consent under section 36(9) of the Trustee Act 1925 (TA), to replace the incapable trustee under section 36(1)(b). If there is a registered EPA or property and financial affairs LPA, it's possible for the application to be made to the Court of Protection under section 18(1)(j) MCA 2005. To confuse things further, if there is a deputy instead of an attorney, the application could be made to the Court of Protection under section 54 of the
TA 1925.

Does the incapable trustee have a beneficial interest in the trust?

If there is no interest in possession, then any continuing trustees will find that the consent of the Court of Protection under section 36(9) TA 1925 is not required, as this only applies where the incapable trustee has a beneficial interest. Things become more complicated, however, if there is an interest in possession, and we then have to take a look at what the trust property is in order to work out the next steps.

This quick run through has probably muddied already cloudy waters further, but my aim in raising this as a topic is to act as a reminder: we can't draw up LPAs for clients, or apply for people to be appointed deputies, unless we know exactly what the attorney or deputy may be required to deal with in the future. Asking the client the right questions about any trust interests plays an important part in this.

Sofia Tayton is a partner and head of care and capacity at Lodders Solicitors

She writes the regular in-practice article on care and capacity for Private Client Adviser