Trusts - Mental Capacity

We are increasingly seeing issues where people involved in complex structures such as trusts are facing issues of mental capacity.

The Problem

A complex family structure has had one dominant personality over their life running the family business. The person is a director of operating companies, director of trustee companies, a personal trustee, holds the power to appoint and remove trustees for a number of trusts and signatory on numerous bank accounts. The person has now developed cognitive issues so the problem is how the entities within the structure will be managed going forward.
The stakeholders are the person above, the wider family and professional advisors. Our role is that of professional advisors over a number of years and we also act as a director for a number of trustee companies. The potential business impact is that decisions will not be able to made from a strategic perspective and more practically, the paying of monthly invoices for business entities within the structure of which the impacted person is the sole signatory or joint signatory on bank accounts.

Our Role

When we became aware that the impacted person had potential mental capacity issues, we looked at the following:

• Arranging for a proper mental capacity assessment by a medical professional for the impact person to determine whether they do or do not have capacity.
• Working out the potential impact on the structure if the person is adjudicated as mentally incapacitated and reviews of enduring powers of attorney and who will act.
• Ensuring the impacted person has the appropriate support as well as close family members who will be caring for the impacted person.
• Detailed research was taken on how the attorney’s under the enduring power of attorney for property could act for the impacted person. For example, where the impacted person was a shareholder can they exercise the shareholder rights to remove and appoint directors of a company? Further analysis was done as to how the mental incapacity of a person impacted on trusts and what provisions of deeds of trust and what provisions of the Trusts Act 2019 were applicable. This provided clarity as to who would exercise powers to appoint and remove trustees if the impacted person held that power under a deed of trust.
• We had calls with various family members and professional advisors to discuss the legal position and also the practical implications of the impacted person’s mental incapacity.

 
Outcome

The final outcome is still to be determined as the final medical assessment for mental capacity has not been issued. However, everyone involved now has an understanding of what will happen when the mental capacity certificate is issued in the future and the steps that need to be taken.

Learnings

The one main learning from this is to ensure all your succession planning documents are in place, especially enduring powers of attorney.

In this situation we were lucky the impacted person has enduring powers of attorney in place which will enable the attorneys to carry on running the businesses in the structure and manage the overall structure by appointing new directors of companies etc. We have seen a lot of situations where clients will have a structure in place and a Will but not enduring powers of attorney.

They are valuable documents in a person’s overall succession planning. The impact of not having them in place and something happening which impacts on a person’s mental capacity will be severe and will take considerable time to sort.