Trustees: Acting by Majority
There are some forms of trust where majority decision making is usual, such as charitable trusts and pension trusts, but with private trusts the trustees are generally required to act unanimously unless, exceptionally, the trust instrument provides otherwise.
Within private trusts, all trustees are also generally required to complete any necessary documentation, whether it is signing a cheque or executing a deed of appointment, unless there is validly delegated authority. Having said that, there are exceptions, such as HM Revenue and Customs – which only requires one signature on the annual trustees’ tax return.
This article will address issues relating both to decision making by a majority and the completion of documents other than by all of the trustees.
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Why have majority decision making?
Majority decision making has been adopted in private trusts where, say:
- the settlor suspects that their chosen trustees might not be able to consistently work together, or
- one or more of the chosen trustees may have a lifestyle that means they will not always be readily available to join in any decision (or to complete any necessary documentation).
Often, such arrangements are founded upon a brief clause within the trust instrument, perhaps along the lines of “The functions of the Trustees may be exercised by a majority of them”.
Under the first point above, in order to ensure a majority decision can be achieved, there needs to be an odd number of trustees, as if there was a 50/50 split there is no majority and the administration of the trust frozen.
Whilst the growth of the internet and the ways of communication supported by it might be seen to render the second point less likely, it does not remove such concerns, especially if the trust was set up before smartphones (and their like) became such an integral part of daily life.
As a professional, one might question the settlor’s wisdom in appointing individuals who either have difficulty working together, or are difficult to contact or communicate with. However, there is no prohibition on settlors being contrary or wanting to treat family members “equally” despite family tensions.
In many cases where trustees are permitted to act by a majority, the trust instrument relieves dissenting trustees from liability for executing documents giving effect to the decision. But more on that later!
It is simple to provide for trustees to act by a majority, but there can be significant downsides.
Issues arising from trustees acting by a majority
There are many issues that could arise in relation to the decision making process, those of greater concern, perhaps being:
Professional trustees: should there be unqualified majority voting when any of the trustees are professionals? It is not unusual for family trustees to do what they see as “right”, without recognising that it might not be permitted under the terms of the trust (whether explicit or governed by trust law). Alternatively, the non-professional majority of trustees may have exercised a discretion within the terms of the trust but in a way that the professional, for whatever reason, may be unwilling to be associated with (e.g. transferring US$ to a cousin in North Korea).
Where a professional trustee dissents as they believe the decision to be a breach of trust or otherwise improper, can they safely complete documentation to give effect to that decision in reliance upon any relieving provision, as referred to above? At the very least, they might have reputational issues.
Should any issues arise, a professional trustee cannot just retire as, by so doing, they may be facilitating a breach of trust or something more catastrophic. The alternative may be to apply to court for directions, which would be both time consuming and costly and, maybe, destroy any working relationship with the other trustees and the beneficiaries.
A professional’s position can be safeguarded by providing that any professional trustee must be in the majority for any decision to be valid.
Consultation: where a unanimous decision is required, it is clear that all trustees must be consulted on any decision as, otherwise, they cannot joint in the decision.
Is the position any different where majority decision making is permitted? A trustee proposing a particular course of action might prefer to talk only with those they expect to support them. However, the excluded trustees may have knowledge relevant to the decision. Accordingly, the exclusion of any trustee from the decision making process may well undermine the validity of the decision, and open it to challenge
Completion of documents
Documents are completed by trustees to evidence, to support, or to give effect to decisions of the trustees.
As identified above trustees are generally all required to sign/execute trust documents. In some cases, the trust instrument may provide that documents can be completed by only, say, any two trustees. Whilst this might seem a convenience, any third party who is expected to rely upon such documents may need to see the trust instrument (and any other documents supporting the signing individuals’ authority), or require a written opinion from the trustees’ solicitors that the document has been signed or executed in accordance with the terms of the trust.
s.11 Trustee Act 2000 (TA2k) empowers trustees to appoint agents to undertake what are essentially ministerial actions. Under s.12, trustees can be appointed to act as agents, subject to the prohibition of the appointment of any trustee who is also a beneficiary. This provision is, perhaps, most often used to enable cheques to be signed by any two or more trustees, but has far wider application. Third parties need only see a copy of the trustees’ resolution under TA2k (appropriately certified). However, it is important for those acting as agent under s.11, whether or not also trustees, to ensure that their instructions in relation to the particular matter have been given by the trustee body acting either unanimously or, where permitted, by the appropriate majority. If the trustees’ instruction to the agent is not validly given, the agent may be liable to recompense the trust fund for any perceived loss.
Although the ability for trustees to act by a majority is well entrenched in certain forms of trust (such as pension trusts and charitable organisations), if adopted for private trusts the application of the appropriate rules may be misconstrued, or just not properly understood by many of those involved.
Notwithstanding the perceived convenience, where a settlor wishes their trustees to be able to act by a majority the advisor should probably seek to discourage such notion unless the intended trustees are well versed in trust law. Having said that, there is always the potential for the appointment of new trustees who are less well versed, with potentially catastrophic consequences. This could include unfortunate consequences for a professional trustee who can be outvoted but still be required to join in giving effect to the majority decision.
The settlor should always be cautioned as to the risks that may arise.
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