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Beneficiaries' rights to trust information

Barbara Gardener

Bio:

Recently we looked at a novel way some trust beneficiaries had sought to obtain information from the trustees, using the Data Protection Act.

We also mentioned a recent case which was decided since this topic was last considered in these articles in 2015. This month we consider this case in more detail and we will also set out the key rules on what the rights of beneficiaries and corresponding obligations of trustees are in this respect.

The right to see trust accounts

The case in question was RNLI and others v Headley and McCole [2016] EWHC 1948 (Ch).

The facts of the case

Mrs Farmer died in 1996 and her Will created two life interests for adult beneficiaries – her son and daughter-in-law, with up to ten named charities benefitting in remainder.

The Will nominated as executors John Headley and Kevin McCole, both solicitors at the law firm Headleys. The estate was worth about £145,000.

One of the life tenants is still alive, so the charities' interests have not yet fallen into possession.

Over the years the charities made numerous requests for information about the trust and a set of provisional accounts was sent to some of them in 2007, but that was the last they ever heard from the firm for many years.

In 2014, five of the charities instructed a firm of solicitors to act for them and they in turn managed to contact Headleys by phone, but did not receive the information they sought.

After several more requests for information the charities issued proceedings against the trustees. As it turned out, one of the trustees had previously died so the case was against the surviving co-trustee, McCole, who in the event failed to appear or present a defence, so the judge had to consider the case on the claimants’ evidence.

The argument and the decision

The charities argued, apparently quoting the 1998 case of Armitage v Nurse, that 'Every beneficiary is entitled to see the trust accounts, whether his interest is in possession or not.' They also quoted Schmidt v Rosewood Trust to assert that trust accounts and other documents must be disclosed to all beneficiaries on demand, save in exceptional circumstances.

Needless to say nothing is quite so straightforward. We previously considered the 2003 decision by the Judicial Committee of the Privy Council in Schmidt -v- Rosewood Trust Ltd (2003) WLR565 back in 2015.

Briefly, the judges in that case decided that it was within the Court’s discretion to decide whether a beneficiary with only a remote or defeasible interest had any rights to see documents at all and, if so, then what classes of document should be disclosed, either completely or in a redacted form; and what safeguards should be imposed to limit the use which might be made of the documents or information disclosed under the order of the Court.

In the present case the judge did not accept the charities’ claims in their entirety, preferring the view that disclosure must depend on 'what is needed in the circumstances for the beneficiaries to appreciate, verify and if need be vindicate their own rights against the trustees in respect of the administration of the trust' which will vary according to the facts of the case.

The judge noted that the charities ' remainder interest had not yet crystallised and therefore they had no basis to demand information about trust income that was payable to the life tenant.

However, he agreed that the charities did have a right to see accounts of capital, lists of investments and a breakdown of trustees' fees and expenditure in as far as the trustees have deducted these sums from trust capital.

Finding the trustees to be in breach of duty, the judge made an order requiring these accounts to be disclosed to the charities. He also ordered the surviving trustee to pay the claimant charities' costs, approximately £8,000, in full, without the right to claim them back from the trust estate.

The decision is therefore also a warning to trustees that they may end up being personally liable for failing to provide the requested information.

So where does that leave us?

The implications for trustees and beneficiaries.

Here are some key points to bear in mind whether you are a trustee or a beneficiary.

Beneficiaries with fixed rights under a trust have more rights to information than those under discretionary trusts.

Certain beneficiaries must be provided with information as of right – e.g. a life tenant about the trust income they are entitled to. A life tenant under a qualifying interest in possession trust must be told about the value of the trust estate that falls into their estate for IHT purposes.

Beneficiaries with fixed or contingent but defined rights (e.g. entitlement to capital at certain age or following the death of a life tenant) have a right to know that a trust exists and what their interests are.

Generally speaking the trust document and other documents appointing/retiring trustees or changing/adding assets are disclosable to a beneficiary. However, if the right of a particular individual depends solely on the trustees´ discretion, there may be no right to receive any information until the person in question becomes a “real potential” beneficiary.

Generally the trust accounts are also disclosable to a beneficiary but access may be restricted depending on the nature of the beneficiary’s interest. As shown in the above case a trustee is only obliged to provide the information needed by the particular beneficiary to appreciate their own rights against the trustee in respect of the administration of the trust; it is not necessary to go beyond this.

Other documents, such as the settlor’s letter of wishes in relation to the trust, documents about the exercise of powers and discretions, and legal advice obtained by the trustees, generally need not be disclosed.

If trustees receive a request for information from a beneficiary, they need to consider it carefully and only refuse a request if they are certain that this is in their power, bearing in mind that a beneficiary may apply to the Court and the trustees may find themselves personally liable for any costs. If in doubt the trustees may also apply to the Court for direction.

COMMENT

Some further clarification of what information and which beneficiaries are entitled to it is welcome as well as the warning to trustees to take beneficiaries’ requests seriously.

It has been noted in recent years that there has been an increase in litigation brought by charities; indeed some have been criticised for being too aggressive. A potential action by a remainder beneficiary, be it a charity or not, is something to consider by any person making a Will or indeed a lifetime trust. A letter of wishes from the testator/settlor will always be an extremely useful tool for the trustees to use. Another issue is the form of Will drafting where charities are to benefit, with some, supposedly simple, provisions causing all kinds of problems. This is something we will look at next month.

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