News | June 17, 2021

Managing a beneficiary: steps to take

Andrew O’Keeffe, Partner and Sarah Turner, Solicitor at Wedlake Bell talk about the steps to follow when there are concerns about how a trust is being managed.

The primary fiduciary role of a trustee is to manage the trust fund on behalf of the beneficiaries and correctly distribute the trust assets. Occasionally, however, a beneficiary might feel that the trust is not being administered properly and express concerns about the actions a trustee is taking.

If an individual raises such concerns, it is first necessary to determine that they are in fact a beneficiary of the trust. This can be checked by referring to the trust deed to see if they are named in the document or if they would be considered part of a class of beneficiaries. Only beneficiaries of a trust can take action and there is no right for third parties to intervene.

Once it has been established that the individual is a beneficiary, it is important to note that beneficiaries have a right to have the trust administered properly. The beneficiary may request information and documents about the trust from the trustees and this will help the beneficiary evaluate whether the trustees are complying with their duties. Previously, only beneficiaries with a fixed trust interest were able to request that the trustees disclose information about the trust but, following the case of Schmidt v Rosewood, all beneficiaries have such a right.

The documents a beneficiary may request include the trust deed and any legal advice obtained by the trustees. Trustees are also under a duty to keep accurate accounts of the trust assets and provide these to a beneficiary on request. The beneficiary should pay the administrative cost of providing the accounts and must allow reasonable time for these to be provided. For the purposes of a discretionary trust, the meaning of ‘trust documents’ does not extend to a Letter of Wishes, as this may challenge the discretion of a trustee.

On receiving a request from a beneficiary, the trustees should decide whether they disclose the trust documentation. If the trustees believe there is a good reason why the documents should not be disclosed, they can refuse to do so. Ultimately, it will be the Court which will decide if the trustees’ refusal is the correct approach.

Once a beneficiary has inspected the accounts, the beneficiary may raise further queries of the trustees about the actions they have taken, including such things as why the assets have been invested in a particular way and regarding the investment objectives, and the trustees should answer these questions. If a beneficiary disagrees with the value of the trust assets, for example, it is possible that the investment strategy and objectives need to be reconsidered and a beneficiary should raise this issue with the trustees. If the trust accounts and other documentation are particularly complex, it might be prudent to instruct a forensic accountant to review the documents and investigate whether a trustee has acted improperly.

If, after reviewing the documentation, the beneficiaries consider that a trustee is acting improperly and failing in his duties as a trustee, a beneficiary can take legal action to bring a claim for breach of trust. This might be, for example, due to a trustee failing to suitably invest the trust fund or failing to distribute the trust property in accordance with the terms of the trust. Before making such a claim, it would be necessary to determine whether the trust has suffered a loss as a result of the actions of the trustee. If this is found to be the case, the beneficiary can request the Court to order the trustee to compensate the beneficiaries for the breach or restore the trust property. Usually, such action is taken against the trustee individually but, in cases where this is not possible, say where the trustee is missing or has been made bankrupt, it is possible to trace and recover the trust property by way of a proprietary action. Whether a claim is successful or not will depend on the facts of the case. A breach of trust claim must be brought within six years from the date of the breach.

A trustee may also be removed and replaced and there are a few ways in which this may be done. It is first necessary to consult the trust deed to determine whether there is any provision for the removal of trustees. If there is no provision for this in the trust deed, one option is that a beneficiary may request that a trustee retires under section 19 of the Trusts of Land and Appointment of Trustees Act 1996. In effect, this power forces an existing trustee to step down and/or appoint a new trustee. Alternatively, the Court has inherent power to appoint a new trustee in place of or in addition to the existing trustees under section 41 of the Trustee Act 1925. They would usually use such power to protect the interests of the beneficiaries.

This article was first published in Today’s Wills and Probate.