Your trust questions answered
I set up my Trust to protect my children from their partners but I don’t want them knowing everything that is going on with the Trust, especially while I’m alive.
The role of the trustee is to act in the best interests of the beneficiaries when making decisions in relation to the trust and its assets. But should a trustee’s decision be open to scrutiny by all of the beneficiaries, looking perhaps for a weakness which they can claim has prejudiced them? Shouldn’t the trustees have the confidence that they can discuss and record the reasons for their decisions without the fear that one of the beneficiaries might become offended by perhaps some of the truths that the trustees expose about that beneficiary’s personal circumstances.
That is part of a balancing act that has been adopted by the Courts in trying to determine just how much information beneficiaries should be entitled to. Contrary to safeguarding a trustee’s decision making ability, the fact is that beneficiaries need to be able to hold the trustees to account. The beneficiaries need to be able to know what, as beneficiaries, they are potentially entitled to receive and the trustees are under a duty to ensure that all of their actions in respect of the trust assets are done so with the beneficiaries’ best interests in mind.
There are many cases documenting beneficiaries’ rights to information and in a recent decision of the High Court this was once again the focus of the proceedings.
In that case two discretionary beneficiaries of a Trust sought a Court direction for the trustees to disclose to them financial statements of a company majority owned by the Trust.
The Court held that it “will require disclosure of information to ensure the trustees meet their obligations towards beneficiaries. The beneficiaries’ right is to have the Trust property properly managed. There are corresponding obligations on trustees to properly manage the Trust and to meet the fiduciary obligations they owe to all beneficiaries. In order to ensure that trustees are held to account, it may be necessary for the beneficiaries to have access to the relevant Trust documents”. The Court concluded that “what information may be required to enable the beneficiaries to hold the trustees to account in a particular case will therefore depend on the obligation in issue”.
So one can see that there is no simple answer, each case will turn on its facts. In this case, the Court directed the trustees to disclose documents relating to the company and associated companies during the period that the Trust owned shares in the company but not beforehand. Neither did the Court require disclosure of trustee resolutions, the trustee minute book or a schedule of beneficiary loans/ advances and distributions as those were not in question. So the beneficiaries were able to access only a limited amount of information.
The solution? Our view is very much that when the Trust is set up, you use that opportunity to talk with your children about why you are setting it up and why it is important to give them protection. As lawyers, we can provide you with numerous stories of when things go horribly wrong that can demonstrate to your children the importance of what you are doing. Good administration doesn’t depend on secrecy and if it’s appropriate, be prepared to allow your children a little more insight as to the inner workings of the trust; it may just save aggravation further down the line.
Source: InBrief Summer 2016