Trustee Decisions – Should the majority prevail?

 In Trusts

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It is trite law that trustees must act unanimously. It is only if the trust instrument specifically provides for trustees to act on a majority decision that such actions may be valid.

Why a majority?

There are some instances where trustees will normally be empowered to act by a majority – generally charitable organisations and company pension schemes in which there are a number of trustees (say, half a dozen or more). Where a private trust is involved, there are normally less than four trustees, often only two, and they will need to act unanimously.

There are a number of reasons why a settlor might wish to enable their trustees to act by a majority, but this does not mean they should be empowered to do so.

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One reason might be an expectation that there could be a falling out amongst family members, preventing the trustees from achieving a common understanding of how to administer the trust (which could range from how to invest the trust fund, to how any monies might be distributed). The problem with enabling the trustees to act by a majority in such circumstances might be to highlight the divide, thereby creating just the issues that the settlor might wish to avoid. In such cases, it is probably better for the settlor to “grasp the nettle” when creating the trust and appoint trustees they believe will be able to work together for the benefit of the beneficiaries overall.

Another reason for empowering a majority decision is the potential for a trustee to become incapacitated, or be incommunicado. Where trustees are required to act unanimously, if one is unable to join in a decision, for whatever reason, the administration of the trust is effectively frozen until they can be replaced or located. Most frequently, the loss of capacity can be identified before the trustee becomes incapable – it is less usual for trustees to lose capacity as a result of a cataclysmic event (e.g. an accident or a stroke). In either case, s.36 Trustee Act 1925 will usually assist the other trustees to “unfreeze” the trust fund.

If it is clear that a trustee’s abilities are diminishing, such that they are unlikely to be able to continue to act as a trustee, might they be encouraged to retire whilst they are still capable of so doing? This could save expense to the trust as a lower threshold is required merely to retire as trustee than to join in the appointment of new trustees.

Inherent risks?

Where family trustees are involved, they might have informal “chats” about the trust fund and form a general view as to what “should” be done. If the trust instrument permits them to act by a majority, those involved in these “chats” might look to implement their agreed view on the basis that between them they are a majority. However, would such a decision be valid? I suggest any such decision would be void. Although the other trustee(s) might, if asked, agree with the decision, the lack of consultation with them, including the sharing of information and views relative to the decision, undermines the decision. It may also be that those trustee(s), if consulted, would have provided valuable input which could result in a better decision, or pointing out valid reasons why the proposed route would not be appropriate. It is, of course, open to the majority to accept or reject a minority view, but all trustees must be aware of the discussion if a decision is to be valid.

At times, the settlor inadvertently “booby-traps” the administration of the trust by appointing an even number of trustees, say two from each side of the family, and permitting majority decisions. The trustees look to the interests of “their own” and every decision is split two/two with “a point of principle” preventing any of them “changing sides” to enable the administration of the trust to move forward.

Professional trustees

By “professional trustee”, I mean a trustee acting in a professional capacity, as defined by s.28(5) Trustee Act 1925.

Not all trusts are managed just by family trustees. Many also have a professional trustee, whether an individual or a corporate trustee. This can raise interesting questions where the trustees may act by a majority.

Example:

Let us imagine a trust where the trustees are the settlor’s two children and his solicitor. It is a discretionary trust with a wide range of objects – the issue of the settlor’s grandparents through all degrees (excluding the settlor and spouse). One of the settlor’s cousins is married to an individual on the UN Sanctions List and has requested a payment to fund their children’s schooling as their own funds are “blocked”. Majority decisions are permitted and the children resolve to pay the cousin the £50,000 requested. The solicitor trustee is in an invidious position as the making of the payment is a breach of Sanctions and may result in the solicitor being struck off. Unless the solicitor can persuade the other trustees to reverse their decision, the only avenue open to them is to apply to the court for directions. A potentially costly and time-consuming process!

It may be the non-professional majority would decide to do something less onerous, but which would still be a breach of trust, and expect the professional to just comply. Again, unless the professional trustee is able to persuade the other trustees of the error of their way, they may need to apply to the court for directions.

To avoid the above, I believe that if (and I mean “if”) trustees may act by a majority, the trust instrument should also provide that if, at any time, there is a professional trustee acting no decision is valid unless it is supported by the professional trustee (or all of them if there is more than one).

Delegated authority

Whilst trustees are required to act unanimously, that does not mean they have to do everything together. It is permissible to separate the trustee decision making from the implementation of those decisions, by the delegation of purely ministerial acts under s.11 Trustee Act 2000. For example, trustees may resolve to operate a trust bank account on the basis of any one trustee’s signature rather than all the trustees having to sign every cheque or payment mandate. The important point is that those signing the cheques, etc. do so on the unanimous instruction of the trustees as a body. With the growth of on-line banking, this could become more the “norm”.

Conclusion

My personal view is that unless there is a compelling reason for trustees to be enabled to act by a majority, which should be rare, the default position should apply- trustees acting unanimously.
Whilst there may seem merit in trustees being permitted to act by a majority, the reality is that this may create factional divides within the trust as time progresses, with individual trustees seeing less need to get on with their fellow trustees than if they all had to agree with every decision.

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