Case study: what happens when an individual trustee falls ill

A trust is only as steady as the person or company holding the assets. This case study on trustee illness and continuity follows a fictional family whose individual trustee became unwell without warning. It is an illustration, not a real matter: the people, places and sequence are invented, and nothing here describes an actual client. Its purpose is to show which clauses, records and habits decide whether a trust keeps working or stalls.

The fictional setting

Example: a family established in Lausanne created a discretionary trust some years ago. The settlor, a retired engineer, chose a long-standing friend, a lawyer, as sole individual trustee. The friend was trusted, discreet and generous with his time. The trust held a portfolio at a bank, a minority holding in a small manufacturing company and a flat let to tenants.

The trust deed named a protector, the settlor's niece, who worked in finance. It also contained a continuity clause: if the trustee became unable to act, the protector could appoint a replacement, and a short list of eligible candidates sat in an annex. A letter of wishes explained how the settlor hoped distributions would be handled for two adult children and a grandchild still in education.

None of this was unusual. What made the difference was that each piece had been written down and kept in one place.

Why an individual trustee is a continuity risk

Many families choose a person rather than a company because they value familiarity. That choice has real strengths, and the question of an individual or corporate trustee has no universal answer. The weakness is simple: a person can fall ill, retire or die, and a trust with one trustee has no one else with authority to sign.

The Hague Convention describes the trustee as the person in whose name the assets are held, who must manage them and account for them. If that person cannot act, the assets do not become ownerless, but nobody can validly deal with them until a successor is in place. Banks freeze instructions, tenants cannot be answered, and the company holding cannot be voted.

By contrast, a trustee established in Switzerland and approved under the financial institutions rules must, under Art. 18 LEFin, be an individual enterprise, a commercial company or a cooperative entered in the commercial register. That structure matters for continuity because a regulated firm has colleagues, procedures and records that survive the absence of one person. Whether that suits a given family depends on the trust and its assets, and it calls for an individual analysis.

What happened: events after the illness

The sequence below is fictional. It shows the order in which things tend to arise when a sole trustee suddenly cannot act.

The first days

The family first noticed the problem because a routine request for a distribution for the grandchild's studies went unanswered. A day later the bank wrote to say it could not act on instructions from anyone but the trustee. There was no emergency, but there was a real prospect of drift.

The protector did not improvise. She read the deed, found the continuity clause and confirmed that the power to appoint a replacement was hers alone. She also asked a simple question that many families skip: is the trustee's incapacity something the deed lets me record, and by what evidence? The deed required a written medical statement. Because the trustee had also left a signed note of his own, the record was straightforward.

Choosing the successor

The annex list helped, but the protector did not simply pick the first name. She considered what the trust needed now: someone able to deal with the bank, support the company holding and keep the beneficiaries informed. This is the same logic as a decision method for choosing a trustee, applied under time pressure. She also asked whether to appoint one trustee or several, the question explored in one trustee or co-trustees.

The family chose a regulated corporate trustee based in Geneva, partly because the earlier arrangement had depended entirely on one person. The decision was theirs, and it reflected their circumstances. Other families in the same position might reasonably have chosen a new individual trustee, backed by a co-trustee.

The questions examined

What the continuity clause did, and what it did not

The clause saved the trust from a gap. Because the protector could act at once, the trust was without an effective trustee for a short period rather than for months. The bank accepted the new appointment once it received the signed deed of retirement and appointment and the supporting documents.

It did not, however, solve everything. Several points stayed open:

• Decisions taken by the sick trustee shortly before his illness had no written reasons, so the new trustee had to reconstruct them.
• The minority holding in the company had an upcoming shareholder matter that nobody had briefed anyone on.
• The letter of wishes was a few years old and no longer matched the family's situation.
• The trustee's personal papers contained some trust documents that took time to locate.

A clause creates the power to replace the trustee. It does not create a record, and it does not create judgement. That is why continuity planning for the period when the trustee is absent also covers record keeping and delegation, not only the wording of one clause.

Limits of this case

This is a single fictional scenario, and it has been made tidy for clarity. Real situations vary in at least four ways:

• The deed may be silent on incapacity, in which case the route to a replacement depends on the governing law of the trust and may involve a court.
• The protector may be unavailable, conflicted or absent altogether, which changes who can act.
• The applicable law is a matter of the settlor's choice or, failing that, of the closest connection under the Hague Convention, and it shapes what is possible.
• Tax, residence of the beneficiaries and the nature of the assets can all affect the steps, and none of them is analysed here.

Practical lessons for a family with an individual trustee

• Check that the trust deed contains a continuity clause and that it names who may act.
• Keep a short list of eligible successors, and review it regularly.
• Ask the trustee to record reasons for significant decisions in writing.
• Hold a complete copy of the key trust documents outside the trustee's personal papers.
• Update the letter of wishes when the family changes.
• Confirm what the bank requires to accept a new trustee.

If you recognise your own trust in the gaps above, an independent review of the trust and its trustee can show where the weak points lie. The same questions arise in the situation of an individual trustee who has died or retired, where there is less time to prepare, and in the wider topic of replacing a failing trustee.