Case law: Court clarifies when trustees must disclose information to beneficiaries
Trustees should consider whether and which information about the trust to disclose if asked for it by the trust beneficiaries, as they must disclose information if it is 'proper' to do so, even if there is no real suspicion of wrongdoing.
This update was published in Legal Alert - August 2018
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A family trust had nine beneficiaries, two of whom were also trustees. The trust fund comprised a farm with a potential development value of around £10m. The trustees entered into option agreements with developers in relation to the farm. Three of the beneficiaries were concerned about these agreements, and asked the trustees for information about the way they were managing the farm, including sight of letters giving the trustees tax advice, and about the people occupying the farm, and the income it was producing.
The trustees responded ten months later, and the three beneficiaries argued the information given was inadequate. They asked the court to order disclosure of the information they sought.
The High Court said that beneficiaries do not have an automatic right to see everything, but trustees have a duty to keep them informed (and give them copies of the trust accounts); and beneficiaries have a legitimate expectation that the trustees will account to them for their stewardship of the trust assets. Trustees must also act in accordance with the trust deed and the law generally, and beneficiaries are entitled to some information to reassure them this is happening.
The Court also said that documents to be disclosed do not include those belonging to professional advisers, but that documents protected by legal professional privilege should be disclosed if obtained for the benefit of the trust and its beneficiaries - or have been paid for by them. It also said that beneficiaries cannot require trustees to give reasons for management decisions they have made, but trustees cannot refuse to disclose documents on grounds they reveal such reasons.
Trustees do not usually have to show beneficiaries any letter of wishes given to them by the settlor of a trust, or legal advice received in relation to the beneficiary's request for information.
Here, the Court found the beneficiaries wanted the information to hold the trustees to account, which is a valid reason. It also ruled that there was no need for beneficiaries to show grounds for 'real suspicion' of wrongdoing or impropriety by the trustees in order to request documents - merely that it is proper for the trustees to make the disclosures asked for.
However, in this case the Court said there was a real suspicion that:
- The trustees had not correctly identified who the beneficiaries were, which benefited the trustees in their capacity as beneficiaries
- They had distributed trust income incorrectly, favouring some beneficiaries over others
- They had not made proper attempts to generate income from the farm before its sale to developers
- They had not sent accounts, or informal or formal updates to the beneficiaries
The Court said it would not have granted the order for disclosure of information if the beneficiaries had been colluding with a different developer and would pass that information on; or they were going to use the information for personal gain (for example, to benefit their own businesses); or there was some other 'genuine concern' about how they would use it.
As none of these scenarios applied, the Court granted the order to disclose most of the information requested, but not all: it drew a distinction between information that was in a document and information that would need to be put into a document in order to be disclosed.
- Trustees of a trust should consider whether and which information to disclose if asked for it by trust beneficiaries, as they must disclose information if it is 'proper' to do so, even if there is no real suspicion of wrongdoing
Case ref: Lewis v Tamplin  EWHC 777
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