The Rights of Beneficiaries: Access to Trust Information

One of the most common topics of communication between trustees and beneficiaries concerns the provision of trust information. Therefore, it is important that all parties understand their rights and obligations. This article provides a starting point for individuals and professionals involved with trusts.

It is a fundamental right of a beneficiary to have the trust administered properly in accordance with its terms and in compliance with the applicable principles of general law. Beneficiaries have standing to hold trustees to account and ensure that the trust is being duly administered. Therefore, there is an expectation (which may be enforced by the court) that beneficiaries will be given sufficient information about the trust to do so.

Schmidt v Rosewood Trust Ltd

This approach, which is rooted in the “supervisory jurisdiction” exercised by the court in relation to trusts, is set out in the decision of Schmidt v Rosewood Trust Ltd¹.  The case helps us to understand the type of information beneficiaries should be able to obtain from a trustee under normal (i.e. non-contentious) circumstances. Where there is litigation on foot concerning a trust, the rules regarding the disclosure of information are different and they hinge on the relevance of any given material to the dispute.

Beneficiaries can ordinarily expect to receive information disclosing the existence of the trust and the nature of their interest under it. This may be achieved by disclosing the trust instrument and any amending instruments. Other documents which are generally made available to beneficiaries include deeds of trustee appointments, retirements and removals (so the beneficiary knows who to direct requests and questions to); equivalent information regarding other fiduciaries involved in the governance of the trust (such as a protector); and annual financial statements or other accounting records showing realistic values and movements in trust assets.

The provision of accounting records is one aspect of a trustee’s duty to account to the beneficiaries for their stewardship of trust property. This means that trustees must be ready to justify what has been done with the trust assets that they are responsible for administering. If trustees fail to account satisfactorily, a beneficiary may seek an order for an account from the court.

What information is confidential?

An important category of information that trustees are entitled to withhold is the reasons for an exercise of discretion, such as a decision about making (or not making) a distribution to a discretionary beneficiary. There are several reasons underlying this principle:

• Provided trustees exercise their discretion consistently with the terms of the trust, reasonably (taking into account all relevant matters and no irrelevant ones), and with no conflict of interest, their reasons are not impeachable. Given the ability to scrutinise reasons is limited, disclosure is commonly not required to enable the beneficiary to “police” the trust.
• Disclosure of reasons may not be in the best interests of the beneficiaries as a whole as it may lead to increased disputation.
• If trustees were required to disclose their reasons, it may dissuade them from accepting office in the first place. 

A settlor’s letter of wishes may also be withheld for related reasons. In many cases, the letter of wishes will form part of the trustees’ considerations in exercising their discretionary powers, which is essentially a confidential process. However, there is no absolute rule, and the court has recognised that disclosure of letters of wishes may be appropriate in some circumstances.

How this applies in practice – takeaways for trustees

What type of financial reporting is required?

• Trustees are under a duty to keep clear and distinct accounts of the property that they administer under the trust and the trustee must be ready to provide them to beneficiaries. Failure to do so may amount to breach of trust. Trust accounts frequently take the form of annual financial statements and in addition, trustees should be able to evidence transactions with trust property, with invoices and receipts.
• The form of the accounts should be sufficient to satisfy the trustee’s duty to account to the beneficiaries and this will vary depending on the nature of the trust assets. Trustees are not obliged to use accountants to prepare financial statements, but in the case of more substantial trust structures with a diverse asset base, it would be prudent to do so.
• In general, while beneficiaries may reasonably expect to be provided with trust accounts, it is not necessarily the case that they are entitled to the whole of the trust accounts. For example, if a beneficiary has a future interest in capital only, they may not be provided with accounts of income due to the fact they have no interest in income. That said, a beneficiary with an interest or right to income may still expect access to capital accounts since it is likely that the capital generates the income.
• Where a trust owns an underlying company, a beneficiary will not automatically be entitled to information concerning the company. However, a beneficiary may be able to make a case as to why such disclosure is necessary. For example, disclosure of company financial statements may be required to enable a beneficiary to understand the position of the trust where the trust accounts themselves are not full and informative.  
• Accounts should be produced and disclosed to beneficiaries within a reasonable period of time. Given trustees should constantly be ready with clear and distinct accounts, this timeframe should not be prolonged.

Is it advisable to keep minutes of decisions?

• While trustees are entitled to withhold their reasons for decisions in non-contentious circumstances, they should nevertheless minute those decisions and make sure to undertake a thorough and balanced deliberation process.
• This is because a trustee’s books and records may be required for reporting and regulatory processes, and they may become disclosable in court proceedings should a beneficiary seek to challenge the trustee’s actions. In those circumstances, material disclosing the decision-making process will no longer remain confidential, and adverse inferences may be drawn from any gaps in the records.

Dealing with beneficiary requests for information

• Trustees should carefully consider beneficiary requests for information. Unless there is good reason not to, a trustee ought to provide the information requested. This will assist in developing a positive relationship between trustee and beneficiary. It will also ensure the trustee is not at risk of a costs order, which might occur if a beneficiary is forced to apply to the court for disclosure and is successful.
• Examples of circumstances where disclosure may not be appropriate include where a beneficiary is requesting information that is confidential to others or where the requests are incessant or disproportionately detailed.
• If a beneficiary’s request for disclosure of information concerns a grievance against the trustee, this may not be a reason of itself for a trustee to deny disclosure. This is because beneficiaries have a legitimate role in enforcing the proper administration of a trust and trustees are expected to work with beneficiaries to resolve any concerns. Trustees and beneficiaries are advised to take legal advice on the appropriate approach in these circumstances. 

Conclusion

The provision of trust information provides an opportunity for trustees and beneficiaries to strengthen their relationship and it is central to the proper administration of a trust. There will occasionally be circumstances where questions or disagreements arise. In those cases, trustees and beneficiaries both have the ability to apply to the court for remedies including directions about disclosure. With advance planning and good communication, the scope for such issues will reduce and beneficiaries will have the trust and confidence they need in their trustees.

Our Expertise

We specialise in handling all varieties of domestic and international disputes for private individuals, family businesses, trustees (both individuals and trust companies) and other fiduciaries, such as executors, protectors, deputies and attorneys. We pride ourselves on being able to provide practical, long-term solutions that meet our clients’ needs. For more information, please contact Emma Johnson in our relationships team.

¹ [2003] UKPC 26; [2003] 2 A.C. 709.