Family trusts are often used as part of tax and estate planning. When a trust has been settled, the trustees should be aware of their duty to disclose.
Trustees owe a fiduciary duty to act in the best interests of the beneficiaries and there are practical reasons for why beneficiaries need information about the trust: to complete their tax returns, comply with reporting obligations, assess whether the trustees are managing the trust in a way that respects the beneficiary’s rights.
The leading case on what must be disclosed to beneficiaries is a Privy Council case from the Isle of Man, Schmidt v Rosewood Trust Ltd.[1] Prior this case, beneficiaries were understood to have rights to inspect certain trust documents which stemmed from their beneficial ownership of the trust property. In Schmidt, the Privy Council held that this was wrong. The beneficiaries have rights to seek disclosure of trust documents and the court has a discretion to decide what, if anything, should be disclosed to the beneficiaries. The court’s role arises from its inherent jurisdiction to supervise trusts. Rosewood Trust provides that the strength of a beneficiary’s claim to disclosure must be assessed and balanced against completing interests such as personal or commercial confidentiality.
Generally, beneficiaries of trusts ought to be able to review the trust deed[2] and the trust accounts. Without access to this information, beneficiaries are unable to ensure that they are properly paid and that the trust is being administered pursuant to the trust’s terms. However, the more remote a beneficiary’s interest in a trust, the weaker that beneficiary’s claim to disclosure of trust information. A beneficiary with an interest so remote that it is unlikely he/she would ever receive anything from the trust has a weak claim with respect to any information about the trust.
On the other hand, beneficiaries are not always able to review documents with respect to the administration of the trust, such as trustee meeting minutes and resolutions, correspondence between the trustees and third parties, investment statements, letters of wishes prepared by the settlor and other documents relating to discretionary decisions.
Recent Case Law
Two recent cases highlight issues which can be considered when assessing whether information ought to be disclosed to a beneficiary. In a case from Jersey, In the Matter of the C Settlement,[3] the issue was disclosing the existence of a trust of over £75,000,000 to a beneficiary who was a little older than 18. His mother sought to prevent the disclosure of the existence of the trust and the amount of it to the beneficiary because knowledge of the trust would be a “harmful and damaging burden.” The trustees were permitted to withhold the information from the beneficiary.
In a case from the England and Wales High Court, Lewis v Tamplin,[4] the court held in favour of disclosure. In this case, a testamentary trust was being administered for the testator’s six children and their children. Three of the beneficiaries were not trustees and sought information with respect to negotiations concerning land held by the trust. They were concerned that they were excluded from distributions. The court ordered the information to be disclosed.
Conclusion
Trustees ought to be practical when dealing with requests for information from beneficiaries. If the release of the documents is unlikely to harm any of the beneficiaries, it should be released. In other words, if the information is in the best interests of the beneficiary, it should be disclosed. If the disclosure of the document could cause harm to one or more of the beneficiaries, the trustees should resist disclosing it.
[1] [2003] UKPC 26. This case has been accepted by Canadian courts.
[2] It is a general principle of the law of trusts that trustees ought to disclose the existence of a trust to a beneficiary who attains the age of majority, Hawkesley v May, [1956] QB 304 (UK Queen’s Bench).
[3] [2017] JRC035A.
[4] (2018 EWHC 777 Ch).