Can you trust the trustees?

What happens if beneficiaries of a trust have concerns about whether a trust is being properly administered?  Requests by beneficiaries for information and documentation regarding the operation of a trust are often problematic especially if the request is made by a discretionary beneficiary who may be unable to establish any real prospect of receiving money from the trust.

Disclosure of documents

In the dim and distant past, trustees would probably try to fend off such requests on the basis of confidentiality or try to limit the disclosure e.g. to the relevant trust deed and any documents relating to changes in the identity of the trustees.  In more modern times however, there has been an increasing trend for courts to order disclosure of trust documents including those relating to legal advice which the trustees have received.

Since the cost of obtaining such advice will probably come out of the trust, beneficiaries not unreasonably seek to argue that if they will end up paying for the legal advice, they should be able to see what they have been charged for.  Trustees’ refusal to provide full disclosure is often interpreted by beneficiaries as meaning rightly or wrongly that the trustees have something to hide.  The problems are particularly acute when the trustees and beneficiaries end up in litigation with each other where the disclosure of legal advice given to the trustees might in effect be providing a running commentary on their side of the litigation putting the trustees at a tactical disadvantage.

The case of Lambie Trustee Ltd -v- Addleman.

This situation was considered recently by the Supreme Court of New Zealand in the case of Lambie Trustee Ltd -v- Addleman.

Two sisters were both discretionary beneficiaries of a trust in which the sole trustee was a limited company (Lambie) which was controlled by one of the sisters.  An initial request for disclosure of information and documentation resulted only in the production of the trust deed and other documents confirming the retirement and appointment of trustees.  Some 10 years later the same sister made a further request for disclosure including of “all legal opinions and other advice obtained by the trustees for the purposes of the Trust Fund and funded from the trust fund including all those that might be privileged as against third parties.” Specifically the court was asked to consider three categories of documents:

1. Legal advice given to the trustees relating to the general administration of the trust.
2. Legal advice given to the trustees in relation to the issue of disclosure.
3. Legal advice given to the trustees in connection with the litigation.

The court said that normally disclosure would be ordered of papers submitted to and opinions received from counsel by the trustees.  Likewise other instructions to and legal advice obtained from the trustees’ lawyers for the guidance of the trustees in the discharge of their functions as trustees, and paid for out of the trust fund.  That was even though such legal advice is privileged, because the court said that that privilege was held for the benefit of both the beneficiaries and the trustees such that privilege was not a good reason for the trustees to refuse disclosure.

On this basis the court decided that the first category of documents should be disclosed.  The real question was in relation to the second and third categories.  Having considered a number of English cases, the court decided that once a beneficiary commences litigation concerning the administration of a trust that beneficiary is not entitled to disclosure of legal advice relating to that litigation.  So once proceedings were actually issued the position was relatively clear but what about documents coming into existence when court proceedings were in prospect but not actually in existence.  In relation to those documents the court decided that the key question was whether the dominant purpose for seeking the legal advice was in connection with defending the litigation.  If it was, then again the trustees could legitimately resist disclosure.

Get tailored advice for dealing with contentious probate

The information given here is intended for general information purposes only and should not be taken as legal advice.

For specific guidance relevant to your situation, please contact our contentious probate specialist Paul Grimwood by calling 01895 207859 or emailing paul.grimwood@ibblaw.co.uk.