Administering Family Trusts
Too often clients think of themselves and their Family Trust as being interchangeable – they are not. The Family Trust is a separate legal entity operated by the trustees. The trustees in turn have legal obligations towards all beneficiaries named in the Trust.
In a recent decision of the High Court these trustee responsibilities were highlighted.
In that case two discretionary beneficiaries of the A.W. Family Trust (“AWFT”) sought a Court direction for the trustees of AWFT to disclose financial statements of a company majority owned by AWFT to beneficiaries of the Trust. The trustees had met with these discretionary beneficiaries “on several occasions”.
The Court considered the conflict acknowledged in previous Court decisions “between the rights of a beneficiary to seek information to ensure accountability of trustees and the established principle that trustees exercising a discretionary power are not bound to disclose to the beneficiaries the reasons behind their decisions”.
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”.
Accordingly, the Court directed that the trustees of AWFT disclose documents relating to the company and associated companies during the period that the Trust owned shares in the company but not beforehand. As there was no issue as to management of AWFT there was no order for disclosure of trustee resolutions, the trustee minute book and a schedule of beneficiary loans/ advances and distributions.
Trustees can not hide behind the Trust structure. They must manage Trust property properly and provide appropriately requested information to show that they are. Conversely, this right of beneficiaries to information (although broad) does not extend to the discretionary aspects of trustees’ decision-making.
If in doubt, trustees should consult us first.