Question 1 tuto AOT - Please refer with a pinch of salt. This tutorial was guided so you don\'t have PDF

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QUESTION 1 Ethan is the trustee of a fund settled by Betty for the benefit of Stacy. Ethan has been away for the last ten months, attending a course of study in England and it is uncertain when he will be back. Betty wishes to appoint another person as trustee in case Ethan is away much longer, to the detriment of the trust. Betty has been told by friends that a trust requires two trustees to validate it and she wants to appoint herself as the other trustee. Advise Betty. First Issue: There are four issues pertaining to Betty’s trust. The first issue is whether Betty should appoint another person to replace Ethan as the trustee to the trust. As purported under Section 40(1) of the Trustee Act 1949 [ACT 208], in an event where a trustee of a trust has been removed or discharged, a new or additional trustee may be appointed in his place. However, there must be a justiciable grounds as prescribed under Section 40(1) of the Trustee Act for a trustee to be removed. One of the grounds of removal as prescribed under Section 40(1) is a trustee may be removed if he or she remains out of Malaysia for more than 12 months continuously and uninterrupted. He may be removed without his consent if his absence continues for 12 months due to his inability to manage the trust from within the country. This circumstance had also been explained in Re Walker, where it was stated that if the trustee remains outside of the country for more than the specified period, the trustee may be removed as his absence will affect the administration of the trust. Further in this case, the trustee however could not be removed as the period was interrupted by a week visit to London. Nevertheless, the 12 month-rule must be observed strictly where the absence of a trustee who remains out of Malaysia must be continuous and not be uninterrupted, or else the trustee cannot be removed under this ground. This strict rule was expressed in Ligar Fernandez v Eric Claude Cooke where in this case, it was proven that the defendant was not in Malaysia for over 12 months, thus renders the court to order his removal as he was legally incapable of acting as a trustee. In Betty’s particular case, she was uncertain whether Ethan will come back to Malaysia in the nearest time. However, as conferred in Section 40(1) of the Trustee Act 1949, Betty must not remove Ethan from being a trustee because it was provided that a trustee may only be discharged if he or she is away from the country for 12 months continuously. In the instant issue, Ethan’s absence has only been for 10 months, which is still insufficient for Betty to remove him under the grounds of removal as prescribed in Section 40(1). Thus, as adduced in Ligar’s case, Betty must adhere to the strict 12 month-rule, then only she can remove Ethan for being away in England. Second Issue: The second issue is whether Betty as the settlor may appoint a subsequent trustee for the trust. Upon creating a trust whether it is inter vivos or wills, the settlor has the power to appoint the original trustees and put the names of the trustees in the trust instrument. However, upon trust has been established, the duty of a settlor is discharged. The power to appoint a new

trustee then only falls under the trusty as clearly expressed in Section 40(1) of the Trustee Act 1949 where it provides that may be appointed in addition or as a new trustee subject to certain circumstances. Furthermore, Section 40(7) mentioned that every newly appointed trustee has the same power and discretion as a trustee originally appointed under instrument creating the trust. The Act only provides for the “TRUSTEE” to have power in appointing a new trustee, therefore, this gives us an implication that the Settlor of the trust do not have the power as the trustee to appoint subsequent trustees. However, virtue by Section 40(1)(a), if the Settlor had nominated themselves as a person to have power in appointing new trustees in the trust instrument, then it would be reasonable for the settlor to have power in appointing new trustees. Moreover, as prescribed under Section 40(1)(b), if there is no surviving trustee that is able and willing to act, the personal representative may, by writing, appoint one or more other persons to be a trustee or trustees. As provided in Section 40(4) and (5), personal representatives here includes executors or administrators of the last surviving or continuing trustee, as well as executors intending to renounce. If there exist other trustees in the trust instrument other than Ethan, then the other trustee may appoint additional trustees as provided in Section 40(1) of the Trustee Act. However, It was only stated that Ethan is the trustee to Betty’s trust but does not mention other trustees. With implying that Ethan is the only surviving trustee, then the only person to have power in appointing a new trustee is the personal representative of the last surviving trustee which is the executors and administrator of the will. Thus, Betty as the settlor has no power to appoint the new trustee as it was nowhere provided in the Trustee Act for settlers to have such discretion. Third Issue: The third issue is whether Betty is required to appoint two trustees in her trust in order to validate the trust. Subsequent appointments of trustees may be made in a number of ways, nevertheless, the procedure and restriction is enumerated within the statutory power which is the Trustee Act 1949. Section 40(1) of the Act gives the power to appoint new trustees subject to certain circumstances, but upon appointing a new trustee, Section 40(2) must be adhered to where it provides that a new trustee or trustees may be appointed subject to the number of trustees as provided under the Act. Furthermore, Section 39(1) (a) of the Trustee Act provides that upon appointment of trustees, the number of trustees should not exceed 4 trustees. Where the number exceeds four, then the first named persons, who are able and willing to act, shall alone be the trustees. Section 39(1) (b) again expressed that the number of the trustees shall not be increased beyond four. The Act only provides the ceiling number of trustees but nowhere in the Act does it provide the minimum number of trustees. However, by reading other Sections of the Act such as in Section 40(6) and Section 41(1) (c), it can be implied that a trust would still be valid even though the number of trustees is less than 4. Section 40(6) stated that when there is a sole trustee, the person or persons nominated in the trust instrument may appoint an additional trustee but shall not be an obligation unless stated in the trust instrument. Section 41 (c) also provides that it shall not be obligatory to appoint more than one new trustee where only one trustee was originally appointed, or to fill up the original number of trustees where more

than two trustees were originally appointed. However, the Section further states that the sole trustee when appointed must be able to give valid receipts for all capital money. This means that where only one trustee was appointed and he has the authority to issue valid receipts for all capital money, he cannot be discharged unless there is a trust corporation or two trustees. Pursuant to the above Sections, Betty’s trust would still be valid despite the number of trust is less than 2. The Trustee Act only provides for the maximum number of trustees which is in Section 39(1) and it should not be beyond than 4 trustees. Hence, the trust would not be invalid due to insufficient number of trustees but as long as the number does not exceed 4 trustees. This is supported by reading Section 40(6) and Section 41 (c) where it states that “it shall not be obligatory to appoint more than one new trustee where only one trustee was originally appointed, or to fill up the original number of trustees where more than two trustees were originally appointed.” Following Section 40(6), unless it has been expressed in the trust instrument that the number of trustees must be more than 2, then Betty’s trust can be constituted as invalid.

Fourth Issue: The last issue is whether Betty can appoint herself as the trustee. Section 40(1) (a) of the Trustee Act 1949 stated that the power to exercise the appointment of trustees can be made by the person or persons nominated for the purpose of appointing new trustees by the trust instrument, may appoint new trustee or trustees by way of writing. Hence, it suggests that the settlor may also appoint him or herself as a trustee, but it must be stated in the trust instrument. In the instant case, applying Section 40(1) (a), Betty may appoint herself as a trustee if it was written in the trust instrument that she was one of the persons nominated in the trust instrument to have power in appointing a new trustee....