Facts
Trustee decision
Court application
Court decision
Comment


The Royal Court has again played an invaluable role in the administration of a trust by approving a trustee's decision to widen the class of beneficiaries of the trust in the face of opposition from the existing individual beneficiaries.(1)

Facts

The settlors of The A Trust were husband and wife and had four children. The settlors had appointed a protector for the trust, who was a close business associate and friend of the settlors. Under the terms of the trust, the settlors were designated the life tenants. Other than charities, no other beneficiaries were named at the point of settlement. The settlors also settled The B Trust, which named the siblings and the settlors' remoter issue and spouses as beneficiaries. The assets settled into both trusts were substantial. There were no letters of wishes for either trust.

The family dynamics were pivotal in this matter. Disputes had arisen between certain members of the family before the settling of the two trusts. Those dynamics contributed to the settlors' reluctance to set down in writing exactly how they wished the succeeding generations to benefit upon their deaths.

The trustee understood that it was the settlors' intention that the trusts should be enjoyed by the wider family with the assets cascading down to future generations.

Trustee decision

Following the death of the settlors, the trustee became involved in ensuring that the siblings could inherit the wife's estate in as tax-efficient a manner as possible. The wife had left the freely disposable portion of her personal estate to The A Trust, rather than to the siblings. This resulted in a restructuring plan, of which the first step was to add the siblings as beneficiaries to The A Trust, so that the trustee could then renounce its inheritance, allowing the siblings to inherit in its place. As a later step, it was the trustee's intention, based on its understanding of the settlors' wishes, to also add the remoter issue of the settlors as beneficiaries of The A Trust.

Court application

Without any warning, at a routine meeting between the trustee, the siblings and the protector in 2010, during the restructuring process, the siblings presented the trustee with a letter requesting the trustee to distribute all the assets of The A Trust to them, after paying a modest sum to charity (in deference to the charitable beneficial class). The trustee rejected this request - it explained that it had been considering the need to plan for future generations, and one of the matters under consideration was the addition of the remoter issue of the settlors to the class of beneficiaries of The A Trust. The siblings' response was to state that they had lost faith in the trustee and that the trustee should either wind up The A Trust as requested, or retire. This was followed by a threat that if the trustee exercised its discretion to expand the beneficial class of The A Trust, the siblings would issue immediate proceedings seeking to set aside the decision and remove the trustee.

As a result of the opposition surrounding the widening of the class of beneficiaries, the trustee considered that a decision to add the remoter issue was momentous in the circumstances. Furthermore, in light of the siblings' demand to be given the bulk of the trust assets (which, as the court found, gave the "unavoidable impression" that the siblings wanted to get their hands on the money and which was contrary to the settlors' wishes), the trustee decided to add to the beneficial class justified seeking the court's approval (a position with which the court later agreed). The trustee therefore issued proceedings seeking the court's approval of its decision. This was later followed by the siblings issuing proceedings seeking the trustee's removal.

Court decision

The siblings contested the trustee's representation. As a result the court had to determine the settlors' wishes with respect to the future of their assets. The protector supported the trustee's view that the settlors had intended for the assets to pass down to future generations.

Based on the evidence from the trustee and the protector, and contrary to the siblings' case, the court concluded that it was the intention of the settlors that The A Trust would be inter-generational with assets cascading down to future generations. Further, it would have been the expectation of the settlors that the remoter issue would have been added to the beneficial class of The A Trust in due course following the death of both settlors.

The court did give some consideration to the question of whether a trustee should make such a significant decision when a broad spectrum of the beneficial class had asserted a loss of confidence in the trustee. The court held that it was right for the trustee in this instance to make such a decision and seek the court's approval before the outcome of removal proceedings because:

  • there was no letter of wishes;
  • a new trustee and protector would have no personal knowledge of the settlors and their intentions;
  • the trustee was part way through a process that would have led to the remoter issue being added as beneficiaries or their interests being taken into account in some way; and
  • there was no impropriety on the part of the trustee - it was motivated by the protection of the interests of the remoter issue in accordance with the settlors' wishes.

Commissioner Clyde-Smith stated that "the efficient and satisfactory execution of this trust going forward requires this issue to be clarified now". He went on: "blessing the decision will avoid difficulties for any future trustee." The court considered the three questions set out under the second category of cases in Re S Settlement, and granted the trustee's application.

In response to the siblings' contention that the trustee was unfit to act for the reasons discussed in Jones v Firkin Flood,(2) although the court could make no finding in the absence of evidence it did point to the fact that in that case the finding of unfitness was predicated on a "total abdication of the Trustee's duties".

Comment

While this is clearly a case that turns on a detailed analysis of the documents and witness evidence in determining the intentions of two deceased settlors, the court's approval of the way in which the trustee proceeded in terms of handling hostile beneficiaries while at the same time seeking to uphold the unwritten intentions of the settlors should be of some use, and comfort, to trustees in a similar situation. Furthermore, it is helpful to have some judicial guidance on how a trustee should act when faced with unproven allegations regarding its conduct.

For further information on this topic please contact Edward Mackereth at Ogier by telephone (+44 1534 504 000), fax (+44 1534 504 444) or email (edward.mackereth@ogier.com).

Endnotes

(1) In the matter of The A Trust (2012) JRC 066.

(2) [2008] EWHC 2417.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.