Representation of Nautilus Trustees Limited  JRC223C
What amendments to a trust deed may be justified in the event of the incapacity of a power-holding settlor?
Pursuant to the terms of a discretionary trust (the "Trust") the consent of the settlor was, during his life, required by the trustees in order for them to exercise certain of their powers including the powers to vary the terms of the Trust, to add or exclude beneficiaries, to deal with income or capital, to appoint new or additional trustees and to change the proper law of the Trust (the "Relevant Powers").
Unfortunately the settlor of the Trust had suffered a stroke and was now incapable of giving his consent to the exercise of any of the Relevant Powers by the trustees. Whilst the terms of the Trust provided that, in the event of the death of the settlor, the power to give such consent would pass to the Trust's protector, they were silent as to what should happen in the case of the settlor's incapacity. It followed that the power to consent could, in the current circumstances, only be exercised by the settlor's curator who, in order to give such consent, would first on each occasion have to secure the agreement of two Jurats under the terms of the Mental Health (Jersey) Law 1969 (the "Law"). The trustees, the curator and the current protector all agreed that this process would be cumbersome and expensive, both in terms of costs and time.
It was therefore proposed that the trustees would, with the consent of the curator given in accordance with the requirements of the Law, exercise their power to vary the terms of the Trust so as to meet the following three objectives:
- to transfer the power to give consent to the exercise of the Relevant Powers (other than the power to appoint new or additional trustees) from the settlor to the Trust's protector;
- to transfer the power to appoint new or additional trustees to the settlor's wife and also to confer upon her a new power (previously absent from the terms of the Trust) to remove trustees; and
- to enable the Trust's protector to charge fees.
Acting together the trustees and the curator (who had secured the consent of the two Jurats as required under the Law) had the power to make these changes; however, given their fundamental nature, the trustees had decided first to seek the Court's approval of the proposed amendments.
The Court agreed that transferring the power to consent to the trustees' exercise of Relevant Powers from the settlor to the protector was a reasonable one, noting in passing that a common express term of many other trusts was that an incapacitated settlor was to be treated in the same way as a deceased settlor when considering the exercise of any powers conferred upon the settlor.
The Court also agreed that it was reasonable to include a new power to remove trustees and that this power should be conferred on the settlor's wife. The reason this change was approved by the Court was that the settlor and his family had always been closely involved with the running of the trust and that the creation of this power would facilitate the continuance of such involvement.
Finally, in the light of the facts:
- that the other amendments would involve the trust's protector in a far greater role in the current administration of the trust; and
- that in a letter of wishes the settlor himself had expressed the intention that the trust's protector ought to be remunerated following the settlor's death,
the Court agreed that the inclusion of a term allowing the protector to charge fees with immediate effect was also appropriate.
Whilst the Court showed itself to be sympathetic to both the proposed amendments to the terms of the trust and to the decision by the trustees to come to the Court to seek its approval of those amendments (indicated by the fact that all of the parties to the representation were allowed to take their costs from the trust's assets), there are nevertheless certain points that emerge which, if borne in mind by professional trustees when establishing trusts, should avoid the necessity of making applications of this kind. Specifically:
- the terms of a trust should expressly allow for the remuneration of a professional protector as well as for the trustees themselves;
- where any powers are reserved to a settlor (or to any other specific individual rather than to an office-holder), the terms of the trust should explicitly state how those powers are to be exercised in the event of the incapacity of that person as well as in the event of their death; and
- if it is desired that either the settlor and/or the beneficiaries of a trust should have some influence over the way in which the trust is administered, an express power to remove trustees should be included and conferred upon such persons.
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