Beneficiaries right to information (costs consequences)
Friday, 6th May 2016
The extent to which a beneficiary is entitled to trust information is a frequent cause of friction between beneficiaries and trustees/executors. The basic principle is that a right to trust information arises under the Court inherent jurisdiction to supervise and, if necessary, to intervene on behalf of the beneficiary to enforce the trust against the trustees. Information should be disclosed if that would be "conducive to the proper administration of the trust".
If the trustees do not provide trust information reasonably requested, a beneficiary can make an application to Court for an order that they produce an inventory and an account of the trust/estate. The beneficiary might hope to recover the cost of that from the reluctant trustees personally, but the recent case of Blades -v- (1) Isaac (2) Alexander (2016) is a reminder that the Court may decide that the costs should be paid out of the trust fund rather than out of the trustees' own pockets, so it can be an expensive victory for the beneficiary.
In Blades the trustees were partners in the firm of solicitors that drew up the deceased's Will. Under the Will the deceased left her entire estate on discretionary trusts for a class of beneficiaries which included her daughter (the claimant), and with power to add further beneficiaries. The Will was accompanied by a letter of wishes that suggested the trustees should consider giving 5% of the estate to the claimant's sister. The trustees exercised their power to add the claimant's sister to the class of beneficiaries and distributions were made. Difficulties arose when the claimant asked the trustees for a breakdown of the estate.
The trustees refused on the grounds that they had concerns about the relationship between the claimant and her sister and that refusal was supported by a barrister's opinion. The Trustees refused to disclose a copy of that opinion also. A different barrister subsequently advised the Trustees that the information should be provided and they provided it.
The claim related to the liability for costs only. The claimant argued that the Trustees should pay both her costs and their own in their personal capacities. The trustees argued that the costs for both sides should be paid out of the trust. The Judge decided that as the barrister's opinion had been obtained for the benefit of the trust and not for the trustees personally it was a trust document, and should potentially be available to the beneficiaries. The Court noted that although she could hold the trustees to account for their dealings with the estate as discretionary beneficiary, she did not have the same rights as a specific legatee. The Court considered that she was entitled to bring a claim as a beneficiary of the trust, entitled to challenge the trustees' concerns about the proper distribution of assets. The Court held that the trustees had breached a duty to account initially, but that no loss had been caused to the trust. The Trustees had belatedly acted properly, and on Counsel's advice. The Court decided that it was not "just" to order the trustees to pay the Claimant's costs personally.
The Court commented that the indemnity that a trustee has would have entitled them to recover both their own costs and those payable by the beneficiary out of the trust fund even if an adverse costs order had been made. There was no misconduct, and the trustees had intended to act in the best interest of the beneficiaries. Their refusal to provide disclosure initially was made in the context of a difficult family relationship so it would not have been fair to deprive them of the normal indemnity.
This case is therefore a good example of the application of the rules regarding an entitlement of a beneficiary to information, and also to the entitlement of a trustee to recover costs incurred in that office from the trust. It is also a reminder of the importance of taking expert advice and then in acting on it.