What right do beneficiaries have to request information from trustees?
The recent case of Lewis v Tamplin (2018 EWHC 777CH) has provided further clarification of the position established in Schmidt v Rosewood Trust Limited (2003 UKPC 26) in relation to the rights of beneficiaries to disclosure of trust documents and the court's supervisory jurisdiction.
The case of Lewis concerned a deceased's estate where she had left her estate on trust for the benefit of her six children equally "for their own use and benefit absolutely and for them to devise bequeath or appoint during their lifetime or in their will as they individually shall decide". The trust included land which could potentially be developed. Four of the children died, some intestate and the claimants were their offspring. The claimants had requested various information from the trustees (including the two surviving children) to enable them to determine if the trustees had acted properly, particularly in relation to the dealings with the land.
Whilst initially the trustees did not accept that the claimants were beneficiaries, they subsequently accepted their view and provided them with 12 pages of trust accounts and copies of the option agreements with the developer for the land in the trust.
The trustees then argued that they had provided sufficient information but the court found for the claimants and further information was required to be disclosed.
Schmidt v Rosewood
Following the decision of the Privy Council in the case of Schmidt v Rosewood, the position was that a beneficiary has a right to seek the disclosure of trust documents as an element of the courts inherent jurisdiction to supervise the administration of the trust but no beneficiary had an automatic right to information concerning a trust. That said, it is generally accepted that the trust documents, including the accounts, will be provided in many situations although they may be redacted for the confidentiality of other beneficiaries. Legal privilege would apply to legal advice provided it has not been paid for by the trust fund or if it relates to a trustees' dispute with beneficiaries. If the legal advice has been paid out of the trust fund legal privilege cannot be asserted against beneficiaries, who have a right to that advice.
Lewis has clarified the issue of disclosure. HHJ Matthews was satisfied the beneficiaries had requested the documents for "precisely the right reasons, to hold the trustees to account, and thus to vindicate their own beneficial interests, by way of an action for breach of trust if need be".
The court held that beneficiaries have a right to seek disclosure of trust documentation and the judgement contains useful examples of when information should be provided and who may be liable for the costs. This now means that the following are some of the principles governing the disclosure of documents:
- The court will not be satisfied by the trustees' assertion that they had already provided the beneficiaries with sufficient information and further disclosure should not be made, but will consider the position as a whole.
- Trustees are not generally required to disclose documentation relating to the exercise of their dispositive powers (for example minutes of meetings), nor provide a copy of the settlor's letter of wishes (although there are exceptions, for example divorce proceedings), but this protection does not extend to administrative functions as the trustees need to be held to account. Documents may however be redacted before they are released to ensure confidentiality is maintained.
- Whilst legal privilege can be used as a reason not to disclose certain documents, this will not extend to legal advice which the trustees sought and paid for using trust money. Although the information may be privileged to third parties, this is not the position with beneficiaries. Trustees should therefore think carefully before using trust money and, if they wish to take advice for the benefit of themselves personally, pay for it out of their own funds.
- Where the beneficiaries are seeking information which is not already in documentary form, it is the beneficiaries rather than the trust fund who are responsible for the costs of producing this.
Trustees should therefore approach requests from beneficiaries for disclosure with care. As HHJ Matthews commented, "it may well be that, if the trustees had taken a less confrontational and more co-operative approach at the outset, all this litigation could have been avoided, and fewer documents (perhaps none at all) would now need to be disclosed". In the case of Lewis, the trustees were also personally liable for the costs of the claim, without the benefit of any trustee indemnity.
We often work for trustees and beneficiaries to help them consider the situation and guide them in relation to the information they should consider disclosing/requesting.
If you would like to discuss this further, please contact Michelmores Tax, Trusts and Succession team.