A need to know - disclosure of information by Trustees
Article first published by Appleby in August 2016
It is not uncommon for a settlor to impress upon a trustee the wish that under no circumstances should his family be told anything about the trust he has just settled for their benefit. He may have very good reasons for wanting this: the knowledge may pose a risk to his own personal security or that of his family; it may serve as a disincentive to younger members of the family and discourage them from making their own way in life; there may be other threats to general family harmony.
This can present a problem for a professional trustee. On the one hand the relationship manager wants to keep the settlor happy; on the other, the directors are mindful that the trustee’s duties are owed to the beneficiaries, not the settlor, and those beneficiaries will only be in a position to enforce their rights if they know about them. Also, there may be other practical reasons why the beneficiaries need the information - to complete their tax returns or comply with other reporting obligations.
Trustees have a general duty to keep the affairs of the trust confidential. Equally, a trustee must be ready with his accounts and make them available to beneficiaries so that they can identify any impropriety and protect their interests: this is fundamental to the “irreducible core of obligations owed by trustees to beneficiaries”. What follows is a brief look at the principles of disclosure by trustees in relation to (a) informing the beneficiaries about the existence of the trust and (b) making available documents and information to beneficiaries upon demand.
Are they interested? Disclosing the existence of the trust.
Circumstances always have a part to play but, as a general proposition, beneficiaries should know where they stand. It goes without saying that an adult beneficiary with a fixed interest in trust property must be told about it so that they may be paid. Less straightforward perhaps is the position of those beneficiaries with future or contingent interests or that of discretionary beneficiaries. It seems difficult to argue that an adult beneficiary with a future or contingent interest should not know about it. Present breaches of trust may be detrimental to the future value of the trust fund and so those potential beneficiaries should be in a position where they can intervene and protect their interests. An exception might be made if that interest is so remote that there is very little prospect of the beneficiary ever receiving anything; for example, there may be no immediate need to inform a beneficiary of last resort (included only to avoid the risk of a resulting trust) of their status as the default beneficiary.
Equally, it seems reasonable that a beneficiary of a discretionary trust, or an object of a discretionary power, should know about and understand their position in order that they may make representations to the trustee and ask to be considered for distributions. Again, remoteness may influence the trustee’s decision but, generally, any adult beneficiary with a realistic prospect of benefitting from the trust ought to know that it exists. As a rule of thumb, a trustee might consider whether or not a beneficiary’s interest is sufficient such that, if they were to apply to the Court requesting an order for disclosure of information about the trust, the court would accede to that request. If it is likely that the Court would order disclosure to that beneficiary, then the trustee should think very carefully before deciding not to tell the beneficiary about their interest. In short, no knowledge means no accountability which could mean no trust.