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In light of the upcoming restrictions to APR/BPR, farming families trying to protect their wealth and assets for future generations may have been considering setting up a trust. Their professional advisers will have been assessing the use of trusts and their impact on disclosure of documents when relationships break down – a common example of which is where a trust becomes a partner in the family partnership.
Disclosure in the context of trusts is a delicate balance between the rights of beneficiaries to hold trustees to account and the trustees’ duty of confidentiality. In this article we consider what happens when a beneficiary of the trust requests information, and what information needs to be disclosed, and to whom, when a dispute arises.
Right to disclosure
Beneficiaries under a trust have a long-established right to hold their trustees to account. Without this, there would be no enforceable trust.
The court has a supervisory role regarding disclosure of trust information to beneficiaries and balancing that need with the trustees’ duty of confidentiality. How that balance is to be achieved fairly will depend on the circumstances in each case.
Why does it matter?
A beneficiary may seek disclosure of trust accounts to see how trust assets have been invested and whether excessive fees or losses have been incurred. Disclosure may alternatively be sought where a beneficiary wants to consider grounds to challenge a trustee’s decisions.
What documents need to be disclosed?
Each request for information needs to be considered on an individual basis. Under general trust law the following categories are useful:
1. General documents
A beneficiary will likely be entitled to see the trust deed and supplemental deeds (e.g. appointment and retirement of trustees) and trust accounts, unless they are unlikely to benefit from the trust. Care should be taken when agreeing to disclosure, to ensure that information will not be used against the trust; sometimes confidentiality restrictions will be imposed.
2. Documents revealing trustee
discretion:
Documents may include agendas and minutes of trustee meetings, correspondence between trustees and correspondence between trustees and beneficiaries.
Beneficiaries are not usually entitled to view documents revealing how trustees have exercised their discretion. These documents are confidential unless the trustee considers disclosure is in the best interests of all beneficiaries.
3. Disclosure of legal advice
There is often confusion regarding the disclosure of legal advice. It is a common misconception that confidentiality between a client and their lawyer prevents trustees from having to disclose legal advice to beneficiaries. However, the court is quite clear that where legal advice has been sought for the trust as a whole and been paid for out of trust funds, confidentiality cannot be argued to withhold that advice from beneficiaries.
Disclosure during court proceedings
Court proceedings can be issued to force disclosure of trust information and in this case, the general trust law set out above remains relevant. For example, the 2018 case of Lewis v Tamplin concerned a claim brought by beneficiaries of the trust of a farm, regarding option agreements entered into by the trustees, where the trustees had failed to provide the beneficiaries with adequate information.
If a claim makes allegations against the trustees, then disclosure is dealt with under the Civil Procedure Rules 1998 (CPR) instead. This can lead to significantly more trust information being disclosed.
Under both the CPR rules and a court order the disclosure of confidential information is common. However, the court can limit those who receive disclosure and can redact certain information.
Conclusion
The information it is appropriate to disclose will vary from case to case. Trustees should apply carefully the principles of disclosure under trust law and can seek the court’s guidance if uncertain about what should be disclosed. Professional advisers should note the distinctions between the different categories of documents and ensure there is no overlap between them and their advice on them, to preserve confidentiality as far as possible.