Leadership Succession for Trusts, Vital for Business Continuity

21 November 2022

The death of a Trustee can have a seriously negative impact on the business continuity of a Trust, unless properly addressed when setting up such a body.

So said Ms Eleanore Hirallall, of Al Baraka Bank’s Legal Division, recently in commenting on the need to ensure leadership succession. This provides for the continued operation and functioning, as normal, of a Trust in the absence of the responsible Trustee, unless a decision has been taken to cease the activities of the Trust upon the death of such a Trustee.

Ms Hirallall said: “When establishing a Trust, it is vital to appoint suitable Trustees to attend to the administration of the Trust, which is ultimately for the benefit of your beneficiaries, being those persons for whom the Trust has been created. The Trustees have an obligation to the beneficiaries, must be familiar with the provisions of the Trust instrument and have suitable provisions in place in your Trust instrument. This is crucial, given that the founder – or person creating the Trust – plays a pivotal role in setting out the rules or powers of the Trustees during their term of office, including the authority to appoint additional Trustees upon the death or resignation of a Trustee.”

She said that frequently, when a Trustee passes away or resigns from office, the remaining Trustees appear unaware of the necessary procedures surrounding that individual’s replacement.

“When a Trustee passes away or resigns, the Letter of Authority must be returned to the Master of the High Court, together with the death certificate or, in the case of resignation, the letter of resignation from the outgoing Trustee and a Resolution from the remaining Trustees accepting such a resignation. If it is a requirement that a replacement Trustee be appointed, the Trustees are responsible for ensuring that a new Trustee is identified and that steps are taken for the Master of the High Court to give effect to such appointment, in order that a new Letter of Authority may be issued,” said Ms Hirallall.

She stressed that some Trusts stipulate the minimum number of Trustees required to serve in office and that failure to comply with such stipulations will result in the remaining Trustees being unable to transact until the minimum number is restored and that a new Letter of Authority would be required reflecting the new Trustee(s) in order for the Trust to continue operations.

Ms Hirallall said a particular difficulty can arise when a Trust has a single Trustee and there are no contingency measures in place in the Trust Deed to regulate the appointment of additional or replacement Trustees.

“In such instances, the Master of the High Court will, after consultation with interested parties, appoint any person as Trustee. In view of this and to avoid the potential appointment of individuals you would not have ordinarily selected as Trustees, it is imperative that your Trust Deed has within it sufficient succession planning provisions to allow for the appointment of additional Trustees upon the death or resignation of a Trustee. In addition, the failure to regulate suitable provisions will result in your Trust facing serious cost implications in seeking legal relief to appoint Trustees.”

“Those involved with or seeking to establish a Trust are advised to fully acquaint themselves with the provisions of the Trust Deed so as to avoid unnecessary complications and the failure of business continuity upon the death or resignation of a Trustee,” Ms Hirallall concluded.