Posted: Thursday, 21 March 2024 @ 09:26
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.’