Beneficiary access to trust information - the final word from the Supreme Court

Wednesday, March 15, 2017

Trustees are frequently confronted with requests for information from beneficiaries concerning the administration of a trust. Whether there is an overriding entitlement to trust information has now been answered by the Supreme Court and guidance issued to trustees. We anticipate this will be the last word in this area for quite some time – although in practice applying the factors will not always be easy, particularly when there are competing interests at stake between beneficiaries.

The Supreme Court has also ruled that “trustees are not required to give reasons to discretionary beneficiaries for the manner in which they exercise their discretions”, and that documents can be redacted to the extent that they show those reasons. This confirms the position in previous cases, and will give trustees confidence that their decisions are less likely to be challenged.

How should trustees approach requests for information by beneficiaries?

The Supreme Court said that the trustee must exercise his or her own judgment as to “whether disclosure ought to be made at all, and if so, to what extent and on what conditions.”  It noted that:

“the underlying principle in deciding whether disclosure will be made will be identifying the course of action which is most consistent with the proper administration of the trust and the interests of the beneficiaries, not just the beneficiary requesting disclosure.”

The same approach applies to a judge considering an application for disclosure by a beneficiary.

Factors trustees should consider

The Supreme Court identified a range of factors that a trustee should consider when deciding whether to disclose trust information to a beneficiary. These are:

  • The types of documents sought: basic documents such as the trust deed should be considered differently to more remote documents such as a memorandum of wishes.
  • The context for the request and the objective of the beneficiary in making the request: if the request is to ensure that the trust is being properly administrated then disclosure will be more compelling than if there is an improper purpose for the request.
  • The nature of the interests held by the beneficiary seeking access: the more likely a beneficiary is to benefit from the trust, the stronger the claim for access.
  • Whether there are issues of personal or commercial confidentiality: recognition should be given to the need to protect confidential information, and to whether the trust deed itself indicated that matters should be kept confidential.
  • Whether there is any practical difficulty in proving the information: it may be a factor against disclosure if the information requested is difficult or expensive to provide.
  • Whether the documents sought disclose the trustees’ reasons for decisions made by the trustees: it is generally not appropriate to disclose trustees’ reasons for decisions.
  • The impact on the trustee and the other beneficiaries if disclosure is made: disclosure may embitter feelings between family members, but non-disclosure may also have that effect.
  • The impact on the settlor and third parties if disclosure is made: as with trustees and beneficiaries, disclosure or non-disclosure may harm other relationships.
  • Whether disclosure can be made while still protecting confidentiality: consideration can be given to redacting confidential parts of documents.
  • Whether safeguards can be imposed on the use of the trust documentation: undertakings about the purpose for which documents will be used could be required, as could inspection only by professional advisors.

What does this mean for a trustee?

When a trustee receives a request for trust information, each type of information should be considered separately. This will mean that some information might be made available to beneficiaries, while other information requests might be declined.

The Supreme Court said that there is:

“an expectation that basic trust information will be disclosed to a close beneficiary who wants it. But there may be room for debate about who is a close beneficiary and the request for disclosure may go beyond such basic information. The greater the scope of the request and the remoter the interest of the beneficiary, the more room there will be for argument about the appropriateness of disclosure.”

In general, the Supreme Court noted that the trust deed and any deeds of variation, together with financial statements, are the documents where the strongest case for disclosure can be made. Trustees’ minutes and resolutions are similar, although these may be either withheld or redacted if they disclose the reasons for decisions.

In contrast are items such as valuations of shares owned by a trust, or financial statements of companies, which will raise confidentiality issues. Information about debts due to the trust, gifting, and other distributions may be confidential and may also damage relationships with other beneficiaries, the settlors, or the trustees.

However, there is no rule of thumb which can be pointed to for each type of document, as each will need to be assessed in the relevant circumstances. In Erceg v Erceg, as the appellant was confirmed to be a beneficiary, and the trusts had been wound up, he was refused access to even the trust deed.

Is this the end of the matter?

The Supreme Court has now ruled definitively, and there are no further avenues that are available for this decision to be reconsidered. However, a review of the Trustee Act 1956 is underway, and a new Trusts Bill is likely to be introduced to Parliament this year.

The current draft of the Trusts Bill includes a requirement that certain basic trust information will be provided to beneficiaries. This includes the fact of being a beneficiary, contact details of trustees, and advice that a beneficiary has a right to request the terms of the trust or trust information. The Bill then sets out the factors to be considered by trustees when dealing with a request for information. The factors in the Trusts Bill coincide with the ruling of the Supreme Court.

While the time of the passage into law of the Trusts Bill is uncertain, given the alignment between the Supreme Court’s view and that of the current Bill, trustees should take the time to familiarise themselves with these factors as their obligations to beneficiaries in this area now seems to be settled.

Please contact our Trusts team if you require further information.

 

Disclaimer: the content of this update is not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.