Interested parties

Saturday, 01 October 2011
A look at beneficiaries' rights to be informed of their interests in the column for STEP England and Wales Diploma students.

Informing beneficiaries of their interests in a trust can pose difficult questions for trustees. Clearly, a beneficiary with an interest in possession is entitled to the income as it arises, and the beneficiary’s knowledge of the trust’s existence and the nature of the beneficial interest will flow from that entitlement, along with possible tax implications. The trustees have a duty to notify an adult beneficiary who has an interest in possession of the existence of a new settlement and the nature of their interest 1.

What, however, are the duties of trustees with regard to beneficiaries without a vested interest in possession, such as those entitled to future income or those in a class of discretionary beneficiaries with a mere right to be considered as an object of the exercise of the trustees’ discretions? How should the trustees fulfil their duties to provide information in the case of a minor beneficiary?

It is not thought to be reasonable to expect trustees to inform beneficiaries of their future entitlement if these are clearly remote 2. This right to be notified is closely associated with the rights that beneficiaries have to request disclosure by the trustees of accounts and documents relating to the trust, and with the trustees’ duty to account to their beneficiaries. It follows that a beneficiary cannot assert these rights to disclosure if they are unaware that they are a beneficiary. On the other hand, if a beneficiary is so remote that they could not successfully assert these rights to disclosure on demand, through the courts if necessary, it is doubtful whether the trustees could be criticised for failing to notify them of their possible but distant future interest.

 Therefore, a broad rule of thumb may be for the trustees to ask themselves whether the beneficiary in question would be able to obtain information from the trustees. As long as the interest is not too remote, any beneficiary with a future-vested, vested-defeasible or contingent interest should be informed as soon as reasonably practicable. A mere expectancy of becoming entitled to a future interest is unlikely to give rise to a right to be notified3.

A change in circumstance may mean that wider notification is required

Minor beneficiaries

When a minor beneficiary attains their majority, the trustees have a duty to inform them of their interest (assuming this is not too remote), without any prompting from the beneficiary. Even before the minor beneficiary attains their majority, the trustees normally have powers of maintenance and advancement in respect of the beneficiary, and so are accountable to the beneficiary. In considering and exercising their powers, the trustees should be in contact with the parents of the minor (or with those who have parental responsibility) during the minority. Only special circumstances, such as where disclosure may be detrimental to the minor, would displace this obligation on the trustees.

Discretionary beneficiaries

Trustees should inform real potential candidates for benefit who are members of a class of beneficiaries4. For example, in Re Manisty’s Settlement Trusts, Templeman J considered a power exercisable in favour of the settlor’s children, relations and the employees of his company. In such a situation, the existence of the power need be disclosed only to the settlor’s children, as they were ‘the most likely objects of the bounty of the settlor’. There would be no breach of duty if the existence of the power was not disclosed to the settlor’s other relations or his employees.

There are few hard and fast rules. It is likely that, if the class is so wide as to make disclosure impracticable, the courts may be more sympathetic to non-disclosure – Neuberger J said he would be reluctant to make an order likely to result in trustees of discretionary private trusts ‘being badgered with claims’5. He felt that the duties of trustees are onerous enough without such added problems.

Trustees should also be aware that a change in circumstance may mean that wider notification is required. To continue Templeman J’s example, if some or all of the settlor’s children died, the trustees may have to consider other relations and therefore disclose the existence of the power to them.

  • 1. Brittlebank v Goodwin (1868) LR 5 Eq 545
  • 2. Lewin on Trusts, 18th ed, para 23–08.
  • 3. Lewin on Trusts, 18th ed, para 23–08
  • 4. Re Manisty’s Settlement Trusts [1974] Ch 17
  • 5. Neuberger J, Re Murphy’s Settlement; Murphy v Murphy [1998] 3 All ER 1.
Author block
Right
Amanda Edwards

Amanda Edwards TEP is an Associate in the Private Client and Tax department at Boodle Hatfield LLP.

The content displayed here is subject to our disclaimer. Read more