Beneficiaries Right to information – Blades v Isaac & Alexander

In the recent case of Blades v Isaac & Alexander [2016] EWHC 601 (CH) the principle of a beneficiary’s right to information has once more been examined by the Court, as well as responsibility for payment of costs incurred by the trustees.

In June 2013 the testatrix died, leaving her entire estate on discretionary trust under the terms of her Will and appointing the partners in a firm of solicitors to act as trustees.

Felicity, the daughter of the deceased, was included in the discretionary class, along with her husband, her children and the deceased’s cleaner. The trustees were also granted the power to add to the class of beneficiaries at their discretion. In support of this power, the deceased left a letter of wishes requesting that the trustees should consider giving 5% of the estate to another daughter of the deceased (Deryn).

In October 2014 the trustees exercised their power of appointment and added Deryn to the discretionary class. Subsequently distributions were made to the beneficiaries, including Deryn, as per the deceased’s letter of wishes.

During the deceased’s lifetime there had been strain within the family and both daughters’ relationships with their parents and each other had deteriorated.
After her mother’s death, Felicity was unhappy with the conduct of her mother’s estate, the appointment of the solicitors as trustees and the administration of the trust itself. She made numerous requests to the solicitors for a breakdown of her mother’s estate, all of which were refused on the basis that the estate accounts were confidential to the executors and the trustees.

In the meantime, Deryn requested sight of the letter of wishes left by the deceased, details of the trust assets and the distributions made by the trustees which, once again, the trustees refused to disclose.

The trustees justified their decision to not disclose information on the basis that they were aware that Felicity and Deryn had a difficult relationship and the deceased had made them aware of the strained family situation in the years they had been acting for her prior to her death. They did not wish to potentially cause further harm. In addition, Felicity had told them that she believed that her sister might challenge the Will and the distributions made by the trustees. The trustees decision was supported by counsel’s opinion to this effect.

Before the trustees could apply to the court for direction, Felicity pre-empted their application by making an application of her own for an order to a) provide a full account in respect of the estate, including solicitor’s charges for administration, and, b) the trustees of the discretionary trust disclose full details of the assets in the trust, their dealings with them and their charges.

As a result, the trustees obtained a second legal opinion from another barrister, who confirmed that the trustees should provide the information requested on the basis of the principle set down in Schmidt v Rosewood Trust Co Ltd [2003], i.e. a trust beneficiary can hold the trustees to account in administering the trust.

Therefore the only matter that remained to be resolved by the court related to the costs incurred by the trustees and who should bear these.

Felicity argued that the trustees should pay all the costs, i.e. her costs and theirs, from their personal funds. The trustees argued that all the costs should be paid out of the trust.

The court decided that the barristers’ opinions were obtained for the benefit of the trust and not for the trustees personally and were therefore trust documents and potentially available to the beneficiaries. That being the case the costs of obtaining the opinions should be charged to the trust fund.
The court also confirmed that although the trustees had breached their duty to account to a beneficiary by refusing to disclose the documents in the first place, no loss had been caused by this and they had acted correctly in the end. On that basis it was not appropriate to charge the trustees personally with the costs, as there had been no misconduct by the trustees and they had always intended to act in the best interest of the beneficiaries of the trust.

It is just as well the trustees in this case did seek expert legal opinion in respect of their actions and, eventually, acted upon it. Had they not done so, the findings of the Court in respect of the costs could have been very different.

The case illustrates the need for the settlor/testator of a trust to bear in mind any potential issues re their choice of trustees, as well as ensuring any letter of wishes not only notifies the trustees of their wishes, but also explains the underlying reasoning and circumstances for those wishes, to avoid disagreement and/or litigation in the future.

For further information and help on this case, please contact the TaxDesk on 0845 4900 509 and ask for Kevin Offer.