Trust Issues and Disputes

58. What is a trust?

Essentially it is a set of promises made by people called the Trustees that they will hold property and apply it for the benefit of others, called the beneficiaries.

59. Who is entitled to information about a trust?

There are no hard and fast rules about this. Broadly speaking if someone is within a class of people capable of benefiting from a trust they will be permitted to obtain some information about how the trust is run. Just how far that goes will depend on a range of issues including whether the interest of other beneficiaries are affected or whether there are commercial sensitivities in the information that is sought.

60. What liabilities may trustees have for poor investments?

Generally speaking trustees are supposed to invest trust funds prudently although that obligation can be altered by the trust deed. In many instances the deed will relieve trustees of liability if they elect to keep the trust fund in one or only a few assets, even if that means that the value of the fund reduces over time. Even if the deed provides that, in extreme cases the Trustees may have a liability for gross investment loss. Ideally trustees ought to invest in a diversified portfolio of investments, with the advice of a reputable financial adviser.

61. What is a discretionary trust and discretionary beneficiaries?

Most modern family trusts are discretionary trusts. This reflects the discretions that are given to the trustees about who should benefit under the trust. A discretionary beneficiary has no interest in the trust assets, only an expectation that the trust will be properly administered by the trustees. He or she acquires an interest in the property only when the trustees exercise their discretion to benefit the particular beneficiary. Discretionary trusts typically allow for the greatest flexibility in trustee decision making although trustees will usually be guided by a “letter of wishes.”

62. How can the Court help trustees?

Sometimes trustees are unsure what they should do even if they have wide discretions. There may be competing claims from different family members or uncertainty over who can or should benefit under a trust. Within certain limits trustees are permitted to apply to the High Court for assistance by way of directions.

63. How far can discretions be used to benefit people not contemplated by the Trust?

Sometimes in the past steps have been taken to resettle or to transfer property from one trust into new trusts which extend to beneficiaries not contemplated in the first. This has been criticised in recent cases where the new beneficiaries have clearly been more than incidental recipients of a benefit. Such cases can see transfers struck down as a “fraud on the power” which is used to make the transfer. Great care needs to be taken to achieve such transfers legally.

64. How is a corporate trustee different from a “natural” trustee?

A “corporate trustee” refers to the case where a company is the trustee of a trust. This often has the advantage that when directors of the company change, property does not have to be transferred to a new owner because the company remains the same. Where natural people are trustees a change of one trustee requires that property be transferred. There are ongoing debates about the respective liabilities of the directors of a corporate trustee compared with the liabilities of natural trustees. In large measure they involve the same concepts of fiduciary duty but the liabilities are enforced by slightly different means.

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