BENEFICIARIES’ ENTITLEMENT TO TRUST INFORMATIONUp to Date shutterstock_127636502

As a trustee what do you do when a beneficiary of a family trust asks you to give them full details of trust affairs? Legally, what information must you give to them?

Underpinning trust law is the Court’s role in supervising trustees. That is what ultimately enables beneficiaries who are unhappy with the administration, or decisions of trustees to apply to the Court for redress. The Court has wide discretion as to what orders it can make.

With discretionary family trusts being the norm, there is also the issue that the existence of trusts are not necessarily known to beneficiaries, or class of beneficiaries named. To further complicate the trustee’s position, settlors may either in the trust deed or by separate memorandum to the trustees indicate that they require the trustees to maintain confidentiality in relation to trust affairs.

A recent Court Of Appeal case as to information access has reviewed previous decisions and stated the current law. The Court confirmed a discretionary beneficiary has a right to seek disclosure. The court however reached a conclusions that there is no presumption favouring disclosure but nor is there presumption against disclosure. The decision whether to disclose and also the extent of disclosure are discretionary decisions for the trustees.    The questions the trustees must consider are what, if any, disclosure will best:

  1. Ensure the sound administration of the trust;
  2. Discharge the powers and discretions in respect of the fiduciary obligations the trustee owes the beneficiary, in particular the trustee’s duty to account; and
  3. Meet the trustee’s obligations to fulfil the settlor’s wishes.

Based on English and New Zealand cases, the Court referred to the following as relevant matters:

  1. Whether there are issues of personal or commercial confidentiality;
  2. The nature of the interests held by the beneficiary, or beneficiary seeking disclosure;
  3. The competing interests of – and therefore the impact on – the beneficiary, or beneficiary seeking disclosure, the trustee(s) themselves, other beneficiaries and any affected third parties.
  4. Whether some or all of the documents can be withheld in full, or disclosed only in a redacted form;
  5. Whether safeguards should be imposed on the use of the disclosed trust information (e.g. undertakings or professional inspection) to avoid illegitimate use;
  6. Whether (in the case of the family trust) disclosure would be likely to embitter family feelings and the relationship between the trustee and applicant beneficiary to the detriment of the beneficiary as a whole. To the list the Court added:
  7. The nature and context of the application for disclosure. While not yet recorded in legislation, the Law Commission in respect of the review of the law of Trusts indicated that in its view, unless were reasons to withhold information, beneficiaries would have access to:

A Court will not intervene in respect of the trustee’s decisions unless the trustee erred in law or principle, overlooked a relevant point, factored in an irrelevant point or made the decision that is plainly wrong. The words “plainly wrong” refer to a decision that was simply outside the permissible ambit of the trustee’s discretion.

  1. Trust documents (including appointment, resignations and variations);
  2. Assets and Liabilities in the Trust;
  3. Financial Statements including in respect of winding up and final distributions;
  4. Information about distributions of capital, income and settlements
  5. Legal advice obtained by the trustees for the purposes of administering the Trust.

Further, unless there are reasons to withhold information, a beneficiary would be able to see the letter of wishes (or memorandum of wishes) from the settlor, notwithstanding that may not be binding on the trustees. If the settlor has expressed that to be confidential, that does not necessarily preclude the information being available. The legal position as stated by the Courts is that the desire on the part of a settlor to maintain confidentiality should not override the duty of trustees to be accountable and prevent beneficiaries being informed.While the setting out of the principles is helpful, the bottom line is that it is up to the trustees to consider the difficult balancing act of what to disclose based on the interests of all parties. The principles once again reinforce the need for trustees (all trustees) in a discretionary family trust to record accurately their decisions, their considerations, and the rationale for any decisions.

Summary
The Law Commission stated that access to other information was less certain. That includes access to minutes or records of decisions, information received by trustees from advisors, communications between trustees and between trustees and beneficiaries and reasons for decisions.