An Ask the team on the meaning of "trust corporation" and when it is relevant.
I am a trainee solicitor. I have been asked to draft a deed of appointment and retirement of trustees. The proposed new trustee (there is only one) is my firm's own trust company. I have noticed that the trust deed states that if there is only one trustee it must be a "trust corporation". I am not sure whether my firm's trust company is a trust corporation and do not know how to check. Can you help?
"Trust corporation" has a special meaning under English law. A company carrying out trust business is not necessarily a trust corporation (even if these words are included in its name).
It is important to understand what a trust corporation is in order to ensure that:
Appointments and retirements of trustees are valid.
Trusts of land can be properly administered.
A company that satisfies certain criteria may be a trust corporation. These include:
Being constituted under UK (or EC) law.
Being empowered by its constitution to undertake trust business in England and Wales.
Having one or more places of business in the UK.
In most cases, being a company registered in the UK (or in the EC) and having issued share capital of at least £250,000 of which not less than £100,000 has been paid up in cash. (For companies who do not have to meet this share capital requirement, see the first and third provisions of Rule 30(1)(b)(iv) of the Public Trustee Rules 1912 (SI 1912/348) referred to below.)
(Section 68(18), Trustee Act 1925, section 4(3), Public Trustee Act 1906 and Rule 30, Public Trustee Rules 1912 (SI 1912/348), as amended from time to time.)
The public trustee and certain other bodies such as local authorities are also classed as trust corporations under this legislation but this is of limited application to most trusts.
It is likely (although not certain) that a trust company established by an English firm of solicitors will have been created so that it qualifies as a trust corporation, but you should check that it does meet the criteria. A key thing to check is where the company is registered as non-EC companies cannot be trust corporations. (Remember that the Channel Islands and other offshore jurisdictions, where a lot of professional trustees are based, are outside the EC.)
A trust of land (www.practicallaw.com/4-107-7421) is a trust of property that includes land (section 1(1)(a), Trusts of Land and Appointments of Trustees Act 1996).
A sole trustee cannot give a valid receipt for capital monies arising under a trust of land unless it is a trust corporation (section 94(1), Settled Land Act 1925, section 27(2), Law of Property Act 1925 and section 14(2), Trustee Act 1925).
A trustee can purport to retire but he will only be legally retired and discharged from his duties under the trust if there are enough new and continuing trustees to perform the trust going forward.
A retiring trustee is not discharged from the trust unless one of the following applies:
Two trustees or a trust corporation continue as trustees.
The original trustee was a sole trustee and the continuing sole trustee can give valid receipt for all capital money. (A sole trustee will not be able to give valid receipt for capital monies unless the trust is not a trust of land).
(Section 37, Trustee Act 1925.)
If there are not enough continuing trustees, the retiring trustee is not discharged from his duties under the trust. This can have far-reaching consequences:
Trustees have to act unanimously (unless the trust instrument states otherwise). Any action that the trustees take without the consent of the undischarged trustee is not valid. This includes future appointments and retirements of trustees.
The undischarged trustee continues to have all the duties imposed by the trust instrument and statute and is liable for any breach of these duties.
For more information, see Practice note, Changing trustees: are previous changes of trustees valid? (www.practicallaw.com/4-383-6627).
The following tips should help you avoid the pitfalls surrounding trust corporations and ensure valid retirement and appointment of trustees.
Some trust instruments will specify the number of trustees required. If the trust instrument specifies that only a trust corporation can act as a sole trustee (as in your question) then this will be the case regardless of the general law. (So this is the case even if the trust was originally established with a sole trustee and is not a trust of land.)
For more information about restrictions on the number of trustees a trust can have, see Practice note, Choosing trustees: How many trustees can there be? (www.practicallaw.com/8-383-8035).
If the trust did not begin with a sole trustee, it cannot have a sole trustee other than a trust corporation in the future (section 37(1)(c), Trustee Act 1925). Even if the trust was originally established with a sole trustee and so may in principle have a sole trustee going forward, it is necessary to consider whether it is a trust of land in order to ensure the retirement and appointment of trustees is legally effective (see next question).
A sole trustee other than a trust corporation cannot give a valid receipt for the proceeds of sale of land (section 94(1), Settled Land Act 1925, section 27(2), Law of Property Act 1925 and section 14(2), Trustee Act 1925). So even if the trust was originally established with a sole trustee, if it is a trust of land there will have to be at least two individuals or a trust corporation continuing as trustees in order for a retiring trustee to be validly retired and discharged (section 37(1)(c), Trustee Act 1925).
Beware of offshore trust companies, which may have the words "trust corporation" in their name but cannot be trust corporations if they are not registered in the UK (or the EC).
These rules do not just apply to trusts that are resident in the UK. They also apply to offshore trusts (that is, trusts resident outside the UK) that are governed by English law or hold UK land.
It is worth taking the time to check that previous retirements and appointments of trustees have been effective. If a former retiring trustee has not been discharged from the trust, then this must be rectified before or at the same time as the proposed retirement or appointment takes place. See Practice note, Changing trustees: how to check if previous changes of trustees are valid (www.practicallaw.com/4-383-6627).
For more information about the appointment and retirement of trustees generally, see:
Practice note, Changing trustees (www.practicallaw.com/4-383-6627).
Practice note, Changing trustees: standard documents (www.practicallaw.com/8-383-6753).
Practice note, Choosing trustees (www.practicallaw.com/8-383-8035).
Practice note, Changing trustees: trust administration (www.practicallaw.com/4-383-6632).
Changing trustees: checklist (www.practicallaw.com/8-383-6630).
Changing trustees: which powers to use: flowchart (www.practicallaw.com/2-383-6628).
