What Are Problem Areas For Trustees?

What are key problem areas/focuses of litigation for Trustees?

Accounts?

Executors (who are not necessarily trustees) do not have a duty to inform beneficiaries of their interests, the distinction being that a Will is a public document. However, in the case of a Will establishing a trust, assuming the executors and trustees are the same people, once the administration of the estate is complete the executors will become trustees and will then have a duty to inform beneficiaries of their interests.

A trustee must keep clear and accurate accounts (Springett v Dashwood (1860) 2 Giff 521).

A beneficiary theoretically has the right to see the accounts (Armitage v Nurse [1998] Ch 241).

A beneficiary does not have the right to be given other information about the trust but may apply to the Court for an Order requiring the trustees to produce this information. He or she is likely to be granted access to the information if his or her request is reasonable, as in Schmidt v. Rosewood Trust [2003] UKPC 26).

Appropriate delegation?

Not to delegate duties unless authorised. The Trustee Act 2000 (s.11) allows trustees to appoint agents to exercise any of their delegable functions. The functions that trustees are not allowed to delegate include: any function relating to whether or in what way any assets of the trust should be distributed.

For both estate and trust administration, there exists a clear duty to ascertain the assets and liabilities, and to administer these according to the terms of the will or trust deed, and the law. Appropriate records should therefore be maintained which will enable them to successfully do so.

What documents should be retained?

For an estate administration, the main documents to retain must include the Will and Codicils (where applicable); the original sealed Grant of Representation (plus copies); any Instruments of Variation; original death certificates; and copy birth or marriage certificates for beneficiaries whose entitlements are determined by age, or those who have married since execution of the Will.

The same approach to record-keeping applies to the administration of trusts. A trust may arise out of an estate administration, and therefore the retention of the above documents will also be essential in ensuring that an ongoing trust is administered appropriately from the outset.

Trustees must be familiar with the terms of the trust (Hallows v Lloyd (1888)), and must be prepared to produce on request any documents or information about the trust, including the trust deed as in Manning v Commissioner of Taxation (1928)

What are the duties to maintain records?

With respect to documents trustees should maintain

•     trustees minutes;

•     details of appointments out;

•     instruments;

•     adding assets to the trust;

•     completion statements;

•     deeds retiring or appointing new trustees;

•     beneficiaries’ names and addresses;

•     copy birth or marriage certificates where appropriate; and any documents sent to, or received from HMRC are important;

•     copies of any legal advice or opinions, to demonstrate that they have taken advice where appropriate, and to determine the reasoning behind their decisions.

How much delegation can trustees do?

Under the Trustee Act 2000 (ss11-15) a trustee may delegate authority to a stockbroker, but must be aware of any activity.

The Trustee Act 2000’s duty of care allows the delegation of certain duties but a trustee must still keep securities under review to avoid becoming personally liable for the acts of an agent - any records should therefore be as available, and as up to date, as is practicable.

Both PRs and trustees must be aware of what is happening at any stage in the administration, to varying degrees (dependent upon the terms and complexity of the trust and the assets held).

As both PRs and trustees’ have a duty to distribute to the correct beneficiaries and in the correct proportions, this surely cannot be achieved without suitably detailed accounts in place.

Trust accounts should record all transactions during the accounting period. As with PRs, a trustee’s duty of care is also set out by statute (s1 Trustee Act 2000 expanded upon in Schedule 1).

Case law lays down trustees’ duty of care, such as in Speight v Gaunt (1883) where it was established that a trustee should exercise the same care as an ordinary, prudent business person would exercise in conducting that business as if it were their own.

As with business accounts, trust accounts must maintain a clear and an accurate accounting of actions taken by recording each step taken, through maintaining accounts backed up by the appropriate paperwork.

Providing records?

Some documents will already form part of the public record and may therefore be reviewed by anyone requesting a copy, regardless of a PR or a Trustees’ views, such as death certificates and Wills or codicils admitted to probate.

In an estate, residuary beneficiaries and legatees may also see the accounts.

If an estate is insolvent, disappointed beneficiaries and creditors whose liabilities have been reduced or depleted may also see the accounts (s34 Administration of Estates Act 1925), as can parents or guardians of minor beneficiaries.

Beneficiaries with a defined interest in a trust (such as capital or income beneficiaries) are entitled to see the accounts, as well as the parents of minors (as before) and the Court, on request.

In Armitage v Nurse (1998) it was held that there was a core of obligations owed by a trustee to beneficiaries which were fundamental to the concept of a life interest trust, one such obligation being to account for the administration of a trust.

A beneficiary with a life interest has a right to know of the trust’s existence, and his or her interest. (Brittlebank v Goodwin (1868).

Disclosure of documents in discretionary trusts, however, can provide far more uncertainty for trustees.

In the case of Cowin, Cowin v Gravett (1886) considered that beneficial ownership gives a beneficiary some prima facie right to inspect documents. The case of Re Londonderry’s Settlement (1964) lays down what trust documents should be made available to a beneficiary, mentioning trust deeds, deeds of appointment and accounts. However, documents not to be disclosed included trustees’ meeting agendas, correspondence between trustees; trustees’ minutes; and documents showing the reasoning behind trustees.’