Our recent trusts symposium looked at issues in relation to mental capacity and undue influence, discussing some of the problems which might face a trustee in the event that a settlor began to show what might be signs of deterioration in his mental health, while appearing to rely too heavily on an individual who did not seem to have the best interests of the settlor at heart. Morven McMillan from Mourant Ozannes reports in this second of a two part series.
A trustee needs to check the terms of the trust deed – are powers reserved to the settlor and if so, what incapacity provisions are there?
We considered different incapacity provisions attaching to different reserved powers. We discussed how important it is to work through what would happen in a ‘worst case’ scenario at the drafting stage so that any inconsistencies between the draft provisions or potentially troubling consequences are spotted before the trust instrument is executed.
We also discussed what could be done to provide for a trustee faced with concerns about a settlor or protector’s capacity but no order appointing a deputy or guardian or conservator or similar has been made in the individual’s home jurisdiction or in the Cayman Islands.
Everyone agreed that information gathering is key; equally, we were aware that when the family beneficiaries were approached, the question had to be handled incredibly carefully and under the strictest confidentiality. We agreed that record keeping was essential and full notes had to be kept of all telephone conversations and meetings with the beneficiaries and the family’s advisers.
We then moved on to consider the question of incapacity and the exercise of fiduciary powers, for example, the power of appointment and removal of trustee or protector.
In our scenario, Stanley exercised his powers to remove Mr Pickle, his lawyer of 40 years, as protector and replace him with Barry, a new friend who had persuaded Stanley to invest a significant amount of money in a number of his “projects”. Stanley also starts threatening to revoke the settlement but in the end, requests a distribution of approximately one third of the total trust capital to invest in Barry’s latest project. We discussed the importance of meeting Stanley without Barry being present and of Stanley receiving independent legal advice in relation to the proposed transaction, rather than from Barry’s solicitor, Mr Mumble.
Finally, we moved on to discuss the basis for and the procedure in the Cayman Islands court for seeking various confidentiality orders so that when (rather than if) the trustee made an application for directions pursuant to section 48 of the Trusts Law in relation to the administration of the trust, it and the family could be confident that confidential medical information could be disclosed to the Court in private and so that neither this information nor the facts of the application, would be accessible to the general public.