21 October, 2021
Decisions made by trustees often become acrimonious and can even evolve into claims for breach of trust and for the removal of the trustees.
The trustees of a fixed interest trust do not have a discretion about who to benefit, how much or when. The beneficiaries have a predetermined, fixed interest in a specific portion of the income or capital of the trust often contingent upon them attaining a specified age.
However, it is often the case that beneficiaries will require funds from the trust before they are due to inherit them. Whilst the trust may set strict terms as to early advancement, the Trustee Act 1925 grants trustees a discretion to make advancements to beneficiaries (but these provisions can be excluded):
A discretionary trust allows trustees greater flexibility when distributing the trust fund. They will usually have the power to decide what gets paid out in terms of the capital or income of the trust, which beneficiary or beneficiaries they wish to make payment to, how often payments are made and any conditions to impose on the beneficiaries as they see fit. Unlike in a fixed trust, no beneficiary obtains an income or capital distribution unless the trustees their discretion in favour of a beneficiary. In legal terms, a potential beneficiary of a discretionary trust only has a right to be considered for a distribution.
Generally, the merits of decisions made by trustees will not be open to challenge, but the decision-making process itself may be.
Accordingly, although the trustees of a fixed trust have the statutory power to apply income and make an advancement, it is only discretionary and not something which a beneficiary can enforce. Whilst a beneficiary can make a request for such provisions to be used, the final decision ultimately lays with the trustee.
Nevertheless, it is possible to challenge a trustee's discretion on the basis that:
From the list above it can be seen that the court will be concerned primarily with ensuring that when making decisions trustees act with honesty, integrity and fairness. Rarely will the court be concerned with whether it would have made a different decision to the one reached by the trustees except in those cases where the trustees have reached a perverse decision.
Beneficiaries who wish to challenge a decision made by trustees can request from them information and documentation in relation to the trust and the decision of which they complain about concerning the distribution of the trust fund.
However, a beneficiary has no automatic right to receive this information. Historically, the courts proved willing only to order disclosure of trust documents and accounts, but not documents underlying the exercise of the trustees' powers or giving reasons for their decisions such as minutes of meetings, resolutions and trustee correspondence or memoranda. That approach was disappointing because it was the latter documents which are likely to contain evidence of a breach by trustees. The approach of the courts more recently shows that they are more willing to order disclosure of a wider range of trust documents, if it is considered necessary to hold trustees to account for the way in which they have managed the trust, and it is proportionate to warrant the disclosure of the information this is requested.
Beneficiaries of a Will trust should consider as an alternative a claim for financial provision under the Act against the estate of the deceased if the trustees fail to exercise their discretion in favour of the beneficiary. Depending upon the facts this could prove an easier route to achieving a share of the estate funds.
For more information contact John Lambe in our Contesting a Will department via email or phone on 01772 220 235. Alternatively send any question through to Forbes Solicitors via our online Contact Form.
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