To disclose, or not to disclose?

That is the question regarding Trusts and Beneficiaries.

Recent Court of Appeal case regarding this issue: Erceg v Erceg.

It was held that regardless of extenuating circumstances, the fiduciary duties between a trustee and beneficiary must at all times be upheld. This means that the beneficiary has the right to request disclosure of documents held by the trustees, but that does not mean that they will necessarily receive that information. That power is up to the trustee(s) discretion.

Your rights as a Trustee.

As a trustee, how does one know what information to give to beneficiaries and indeed, if it is within their best interest to divulge certain information. The courts have said that the trustee(s) have discretion but that can be confusing. What if the information the beneficiary has requested will be detrimental to the fiduciary relationship between trustee and beneficiary? Below are some helpful questions that trustees should keep in mind before deciding to disclose information:

• Ensure the sound administration of the trust;
• Discharge the powers and discretions in respect of the fiduciary obligations the trustee owes the beneficiary, in particular the trustee’s duty to account;
• Meet the trustee’s obligation to fulfill the settlor’s wishes. Such things as a threatening illness that may make duties difficult to carry out if revealed to the beneficiary.

Trustee’s discretion– what does this mean?

Whether information is disclosed to a beneficiary or not, is up to the trustee. The list below was used in the Erceg case, taken from Schmidt v Rosewood Trust Ltd which the Court considered to be a useful guide:

1. Whether there are issues of personal or commercial confidentiality;
2. The nature of the interests held by the beneficiary or beneficiaries seeking disclosure;
3. The competing interests of – and therefore the impact on – the beneficiary or beneficiaries seeking disclosure, the trustee(s) themselves, other beneficiaries and any affected third parties;
4. Whether some or all of the documents can be withheld in full, or disclosed only in redacted form;
5. Whether safeguards should be imposed on the use of the disclosed trust documentation (for example, undertakings or professional inspection) to avoid illegitimate use;
6. Whether (in the case of a family trust) disclosure would be likely to embitter family feelings and the relationship between the trustee and applicant beneficiary to the detriment of the beneficiaries as a whole;
7. The nature and context of the application for disclosure.

These factors are what the trustee must weigh up when deciding whether or not to disclose requested information to the beneficiary, or beneficiaries in question.

When does the Court get involved?

As is the case with any legal decisions regarding competing rights, the Court must not interfere with issues of disclosure unless there has been a serious breach on behalf of the trustee. The Court therefore, looks at the how the trustee has exercised their power of discretion and will do their best not to intervene unless a serious error of law has occurred which requires legal rectification. We have experience dealing with trusts and disclosure issues and are here to help should you have any questions after reading this. So, if you are interested in discussing this further, then please feel free to contact us at Jeremy Sutton Barrister for a consultation.