Trust documents – Rights of beneficiaries and obligations of trustees

When advising beneficiaries or trustees about their respective positions, the question of who may be entitled to trust documents pertaining to a trust and what documentation should be provided is not straightforward.

Invariably beneficiaries consider such requests reasonable whereas trustees may take the opposite view refusing the request or offering only limiting disclosure, inevitably leading to disputes.

The questions surrounding such rights and obligations have been the subject of numerous cases, some old although there have been some more recent cases which shed some light on changing views whilst also giving some insight into how to deal with requests for trust documents whether as a beneficiary or as a trustee.

Trustees’ obligations

The starting position is that Trustees are obliged to administer a trust in accordance with the provisions of the law. Similarly, trust beneficiaries have a right to expect that of the trustees.

Trustees are obliged to keep trust accounts and should be ready to provide those to beneficiaries or to the court upon reasonable request.

Who can request disclosure?

Trustees should firstly consider whether the person requesting information is entitled to the information or documentation. It is long established that trustees should inform adult beneficiaries who have an interest in possession, that is, the right to income from the trust assets or a right to use trust assets about the existence of the trust and the nature of their interest in the trust (Brittlebank v Goodwin [1868]).

Even where a beneficiary only has a potential future interest under the trust, trustees should consider notifying beneficiaries of the existence of the trust and their prospective interest. This includes beneficiaries who are likely to benefit under a discretionary trust (per Chaine-Nickson v Bank of Ireland [1976]).

In Re Londonderry’s Settlement [1964] a case regarding a discretionary trust and the right to disclosure of trust documents the court considered what were and were not trust documents and identified documents that a beneficiary was or was not entitled to disclosure of. It was held that the right to disclosure covered only documents relating to the ownership, management or administration of any property vested in the trustees.

In Schmidt v Rosewood Trust Limited [2003] a case regarding an Isle of Man discretionary trust, the son of the settlor requested disclosure of trust documents by virtue of his discretionary interest and his expectation of benefitting under the discretionary trust settlements and because he was administrator of the settlor’s estate. The Privy Council held that no beneficiary is entitled or has a right to disclosure of trust documents and that disclosure to a beneficiary is not dependent on the beneficiary having a proprietary interesting the trust assets. The court went on to say that beneficiaries could seek disclosure of trust documents using the court’s inherent jurisdiction to supervise and if necessary to intervene in the administration of trusts.

However, the court also held that “… no beneficiary (and least of all a discretionary object) has any entitlement as of right to disclosure of anything which can plausibly be described as a trust document. … when there are issues as to personal or commercial confidentiality, the court may have to balance the competing interests of different beneficiaries, the trustees themselves, and third parties. Disclosure may have to be limited and safeguards may have to be put in place. Evaluation of the claims of a beneficiary (and especially of a discretionary object) may be an important part of the balancing exercise which the court has to perform on the materials placed before it. In many cases the court may have no difficulty in concluding that an applicant with no more than a theoretical possibility of benefit ought not to be granted any relief.”

What should trustees do when they receive requests for information or documentation from a beneficiary?

As a beneficiary has no specific right to disclosure, trustees should in exercising their discretion, consider all information relevant to the beneficiary’s request. In doing so, trustees should consider the following:-

  • what is the purpose of the disclosure request
  • the type of documents requested and the contents of those
  • whether or not disclosure would be in the best interests of all of the beneficiaries

For example, where a beneficiary requests disclosure of trust accounts but the trustees reasonably consider that request is made with a view to attack the trust or trust property, then the trustees ought to be cautious where giving disclosure may not be in the best interests of the beneficiaries as a whole.

If the trustees are unsure of the beneficiary’s purpose in requesting disclosure then the trustees should ask the beneficiary to explain their position and the reason for their request. It may even be prudent for trustees to provide limited or redacted information or documentation.

What documents can beneficiaries request disclosure of?

  1. The trust document – being central to the trust, trustees should not object to disclosure without good reason.
  2. Supplemental trust documents – for example documents relating to the appointment and retirement of trustees, or documents relating to the variation of the trust. These would usually be disclosed.
  3. Trust accounts – because a trustee is obliged to keep and give accounts trustees should provide these. If they do not, the beneficiary can ask the court to order the trustees to provide accounts. Trustees can expect that the courts will order accounts in addition to ordering trustees to pay costs.
    In Henchley v Thompson [2017] the court ordered a former trustee to provide an account to the beneficiaries of his dealings with a trust many years after he ceased to be a trustee.
  4. Letter/s of wishes – it is quite common for settlors to make a letter of wishes and state that it should remain confidential to the trustees. It is well known that these are not binding on trustees although trustees ought to consider those wishes when deciding how to deal with the trust.
    In general, trustees are not obliged to disclose a letter of wishes. However in Breakspear v Ackland [2008] the court considered whether a letter of wishes should be disclosed. The court held that trustees should generally treat a letter of wishes to be confidential and that the trustees have a discretion whether to maintain, relax or abandoned confidentiality. The court also went on to say –
    • after the trustees have made their decision trustees are not obliged to give reasons for it, any more than in relation to any other exercise of their discretionary powers. If trustees give reasons for their refusal then the court can consider whether those reasons were appropriate.
    • in difficult cases, the trustees may seek the court’s direction, which would require full disclosure to be given to the court.
    • If a beneficiary applies to court for disclosure, requesting that the court invoke its administrative jurisdiction, then the onus is on the beneficiary to show why the court should intervene. A mere refusal to disclose a letter of wishes without giving reasons for this would not ordinarily justify intervention by the courts unless the beneficiary can evidence unfairness.
  5. Documents regarding the exercise of trustees’ powers and discretions – generally trustees have a discretion to disclose or not although it is likely that trustees may lean towards withholding those documents.
  6. Legal advice documents – trustees are entitled to take legal advice where they consider it necessary. Where trustees obtain legal advice and pay for that from the trust fund then even though the advice may be privileged as against third parties, it may not be privileged as against the beneficiaries, and therefore could be discloseable.
    In Lewis v Tamplin [2018] the court confirmed that even where trustees had provided information, the trustees could not rely on legal professional privilege as the basis to refuse disclosure of legal advice where the advice was obtained for the benefit of the trust as a whole (and not for the trustees personally in relation to potential liability for breach of trust). In that case the court held that the beneficiaries did not have to show suspicious circumstances before the court could exercise is supervisory discretion to order disclosure (although the court was satisfied that there were suspicious circumstances).

Can trustees refuse disclosure or not?

As a general guide, unless there is a valid reason not to give disclosure then trustees should lean in favour of giving disclosure (or perhaps only limited disclosure if that is apt in the circumstances).

If trustees refuse to disclose, and as a result a beneficiary then commences proceedings then the trustees risk the court ordering them to pay costs although every case will turn on its specific facts.

What should beneficiaries do?

In the first instance, beneficiaries should request disclosure from trustees giving reasons for the request.

If the trustees refuse (and cannot be persuaded), the beneficiary could consider seeking a court order on the basis that the court should invoke its discretion regarding the administration of the trust.

Alternatively, beneficiaries can consider making an application for pre-action disclosure upon taking legal advice.

Moore Barlow has a leading Private wealth disputes team and can be contacted on 01483 464 274 or by contacting Scott Taylor.