Points of contact
Handling sensitive documents
As much as every trustee desires harmony and familial good will, the reality of modern trusteeship can be different. With the ever-increasing rise in high and ultra-high net worth structures, often in a dynastic setting, the potential for disharmony, or downright hostility, among beneficiaries is on the rise. Further, a situation can often go from apparent harmony to all-out war in only a short time. Whether due to a divorce or other litigation, when beneficiaries are at war, the critical thing for a trustee is to avoid no man's land.
The beneficial class is often polarised or split into sides. These sides, whether a single person or numerous individuals, can be difficult to deal with, for instance:
- their judgement may be skewed by the pressures and upset of the dispute;
- they may have ulterior motives in their dealings with the trustee; or
- they may come to view the trustee as something beyond the usual fiduciary role – as confidante, umpire or even opponent.
Every situation will have its nuances and particular difficulties. However, this article outlines some practical steps that can be taken to help the trustee avoid unnecessary obstacles and issues.
The most important thing is to stay impartial. Beneficiaries, particularly stressed or anxious beneficiaries, often see their trustee as a judge or umpire and will want to have their support. Comments may be made, or leading questions asked, about other beneficiaries' conduct. Privately, the trustee may have a view on whose position is the more meritorious, particularly where the actions of one beneficiary may be vexatious or inappropriate. The critical point is that the trustee's views are not expressed. The trustee should stress that the dispute is between beneficiaries and it should be resolved among them. Staying impartial in this sense does not mean that the trustee cannot, in the proper exercise of its powers and discretions, make a decision at a later stage that does favour one beneficiary over the other; however, that decision must manifestly be reached on an impartial basis.
For that reason, when dealing with warring beneficiaries, trustees may wish to be particularly attentive at taking, checking and filing notes. The record should always evidence the expressed trustee's impartiality.
Once a professional trustee is notified of a dispute between its beneficiaries, it may be (and often is) appropriate for the trustee to allocate a point of contact to each side of the dispute. These should be senior practitioners (director level where possible) and potentially with a team, depending on the size and complexity of the trust in question and the underlying dispute. This can diffuse the strain and potential risks of a single point of contact having to deal directly with both sides of parties to the dispute within the beneficial class. It is likely that a beneficiary will appreciate an individual point of contact, especially if it is explained to them that the approach is to ensure that they have appropriate contact with their trustee in a discrete and impartial way.
The nomination of individual points of contact is there to enhance the sensitivity and impartiality of the approach; each point of contact may wish to emphasise that they are a conduit for effective communication, ensuring that they cannot be perceived as being on a particular bias towards one beneficiary. There should be frequent and detailed communication between the points of contact so that the trustee is fully aware of the direction of travel of the trust's administration. Where there is a minor beneficiary involved in the dispute, the party may wish to have a dedicated point of contact for that minor through their guardian(s). Particular care and discretion should be exercised in relation to discussions with a non-beneficiary guardian, particularly concerning the dispute between the other beneficiaries.
It may be that legal proceedings are instigated by beneficiaries against one another. Where this happens, additional caution must be exercised. The trustee may, deliberately or inadvertently, be provided with privileged information by a beneficiary pertaining to that beneficiary's position in legal proceedings. Trustees may wish to exercise great care to ensure that this cannot make its way to any other beneficiaries. If it does, a negligence or breach of trust suit could be brought against the trustee by the relevant beneficiary. The nominated points of contact regime is of particular assistance where there is exchange of sensitive legal material with the trustee. However, where it is likely that significant material will be received, a segregated internal document filing treatment may be appropriate. The trustee may wish to seek legal advice swiftly if it begins to receive legal documents in relation to a beneficiary dispute. It may also be helpful to have a discussion with the respective beneficiaries and their legal advisers about legal privilege at that point so that there can be no misunderstanding about whether information provided to the trustee retains its privileged nature or could be accessed by the opposing beneficiaries through the trustee.
Funding is often an issue. A beneficiary may request that the trustee funds their position in a litigation with another beneficiary out of the trust fund. There is no policy of general application in such a scenario. It may sometimes be manifestly in the interests of a particular beneficiary to fund or quite the opposite may be the case. Where a minor is involved, it may be appropriate to ensure that they have access to dedicated legal counsel to protect their interests. It may also be appropriate to fund all parties in an effort to bring the dispute to as speedy a resolution as possible, which is in the interests of the whole class. The crucial point is that the trustees must act in the interests of the beneficiaries and appropriate legal advice should be taken as soon as such a request is received.
Depending on the situation, an application for directions or a blessing application to the courts may be appropriate.
For further information on this topic please contact James Angus by telephone (+44 1534 514 000) or email ([email protected]). The Ogier website can be accessed at www.ogier.com.