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settlor, and if so, what, if any, incapacity provisions relate to them? A deed can provide, for example, preliminary steps to be taken by the trustee in clearly defined circumstances, leading ultimately to suspension of reserved powers. It can provide for automatic reversion of reserved powers to the trustee as soon as an order has been made for the appointment of a guardian over the settlor’s financial affairs. The trustee must be careful to check what its duties are in these circumstances and act accordingly.


Taking appropriate action Information gathering is key and good record keeping essential. When family members are approached, the question has to be handled sensitively and under the strictest confidentiality. In our symposium scenario, it was plain that the trustee would need to talk to and preferably meet the settlor, the other family beneficiaries and the protector. Discreet enquiries would have to be made as to what steps, if any, had been taken by the settlor or his wife to obtain an


The settlor replaced his protector with a new friend who persuaded him to invest heavily in a number of his new ‘projects’


assessment of the settlor’s health from his doctor or mental health professionals. In our scenario, the settlor exercises his


powers to remove his lawyer of 40 years as protector and replace him with a recently acquired friend who has persuaded him to invest a lot of money in a number of his ‘projects’. The new friend is not trusted by the settlor’s family. The settlor threatens to revoke the settlement but changes his mind and instead requests a distribution of approximately one third of the trust capital to invest in his friend’s latest project. Given the trustees’ concerns about the settlor’s mental capacity, it was clear that an application to court for directions by the trustees was likely. In short, this is a challenging issue for


trustees to contend with and understandably,


many will seek legal advice at the earliest opportunity. It must be handled with the utmost sensitivity. The trust instrument should be drafted to


equip trustees with the powers to deal with this situation, should it arise. The draft will be discussed with the settlor when the settlor is able to accept the good sense in the trustee having these powers available to it – far easier at that stage to discuss this question with a view to protecting the settlement from the consequences of the settlor’s incapacity, than afterwards, when the only option available to the trustee may be an application to court. n


MORVEN MCMILLAN is Counsel and Head of Trusts, Cayman Islands, at Mourant Ozannes


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