The meaning of ‘reasonable’

Monday, 01 October 2012
Transferring trusteeship with minimal cost or disruption to the administration of the trust.

This article explores how outgoing and successor trustees should manage the negotiation process regarding outgoing trustees’ security for liabilities in difficult circumstances, taking into account the outgoing trustees’ and successor trustees’ respective obligations and legitimate interests, and the interests of the beneficiaries, who require such negotiations to take place efficiently so that they are completed with minimal costs and disruption to the administration of the trust.

The efficient management of such negotiations is particularly challenging in circumstances where the:

  • outgoing trustees’ liabilities are subject to contingencies;
  • parties disagree regarding the probability that the contingencies will materialise;
  • quantum of the outgoing trustees’ liabilities (if they do arise) is far from certain;
  • outgoing trustees consider that they may be exposed to liabilities in the near future but have limited understanding of the basis, amount, or probability of their exposure;
  • relationship between the settlor, protector or beneficiaries and the outgoing trustees has completely broken down;
  • trust fund is illiquid; or
  • outgoing or successor trustees are experiencing difficulty accessing liquid assets in the trust fund due to the influence of the settlor or other third parties, or for other reasons.

The issues will be considered primarily with respect to private express discretionary trusts established under the laws of Jersey or Guernsey that settlors have established for the benefit of their families. The principles explored are, however, relevant for other types of trusts including those that are governed by laws of other jurisdictions.

For the purpose of this article:

  • ‘outgoing trustees’ refers to trustees that have recently retired or have been removed as trustees;
  • ‘costs’ refers to fees and expenses;
  • ‘liabilities’ includes costs and liabilities (existing, future or otherwise);
  • ‘successor trustees’ refers to trustees that have been appointed in place of the outgoing trustees; and
  • a reference to the ‘nature of liabilities’ includes the monetary value of the liabilities and the probability that they will materialise.

It is impossible to contemplate every unique scenario that may arise when outgoing trustees’ security is being negotiated. However, many common issues arise during such negotiations. Where these issues are not explored by the courts on a regular basis, it is practical to discuss general principles that can be considered by trustees with the aim of outlining why some approaches may be unreasonable and developing a consistent approach and procedure across the industry that is likely to reduce costs and appropriately balance the relevant parties’ interests in most cases.

Ultimately, the nature and level of the outgoing trustees’ security can be determined by the court. In exceptionally complicated cases, the divergence of interests of the outgoing trustees and successor trustees may be so difficult to reconcile that a court determination is unavoidable. However, courts would invariably expect the outgoing and successor trustees to take reasonable steps to efficiently resolve the issue of security, particularly as the dispute may have an adverse impact on beneficiaries as a result of the increased costs, including legal expenses incurred by the outgoing and successor trustees, that are borne by the trust fund, and the impact on the efficient and proper administration of the trust.1

Key provisions in Jersey and Guernsey legislation

This article does not explore all provisions in the Trusts (Jersey) Law 1984 (TJL) and the Trusts (Guernsey) Law 2007 (TGL) that are relevant to outgoing and successor trustees’ rights and obligations in connection with transfer of trusteeships.2 It focuses on those provisions most directly relevant to the exploration of efficient management of the process to agree or determine the outgoing trustees’ security with minimal impact on the administration of the trust.

Article 34(1) and (2) of the TJL together provide, among other things, that outgoing trustees shall ‘duly surrender’ trust property subject to being first provided with ‘reasonable security for liabilities, whether existing, future, contingent, or otherwise’ if the outgoing trustees require it.

Article 34(3) TJL provides, among other things, that outgoing trustees that duly surrender trust property in the manner contemplated above shall be ‘released from liability to any beneficiary, trustee or person interested under the trust’ aside from liabilities that outgoing trustees incur as a result of their own breach of trust or claims to recover trust assets in the possession of the outgoing trustees.

Section 43 of the TGL is substantially in the same terms as Article 34 TJL, except for subsections 43(2) and (4). Subsection 43(2) TGL provides, among other things, that where the security is ‘by way of an indemnity against the trust property’ the indemnity shall not (except with leave of the Guernsey court or by consent of all the beneficiaries) be greater than that to which the outgoing trustees would have been entitled had they remained trustees, and contemplates that the ‘reasonable security’ may solely be in the form of an indemnity, rather than, for example, a charge over trust assets or possession of trust assets.

Subsection 43(4) TGL provides that the outgoing trustees may enforce an indemnity against a beneficiary or (successor) trustee, notwithstanding that the outgoing trustees are not parties to the indemnity. This approach is reflected in the templates contained in the STEP publication A Practical Guide to the Transfer of Trusteeships3 (the ‘STEP Guide’), including those applicable to Jersey law trusts. Amendments to the TJL are due to take effect later in the year, and include provisions that reflect the effect of subsection 43(4) TGL.4

Subsections 43(2) and (4) TGL may serve in Guernsey to clarify positions that are likely to apply in the Jersey court in relation to a Jersey law trust, notwithstanding that Article 34 TJL may not yet include the same detail.

Relevant case law principles

An increasing number of cases outline principles regarding how outgoing trustees, in particular, should mobilise during the process to transfer administration of a trust to successor trustees. The principles in these cases that are pertinent to this article include:

  • outgoing trustees should actively prepare for the trust assets and administration to be transferred to the successor trustees, notwithstanding that the outcome regarding the outgoing trustees’ indemnity for its liabilities is pending;5
  • both outgoing and successor trustees should take into account the interests of the beneficiaries, notwithstanding that the outgoing and successor trustees may have legitimate personal interests that they wish to protect;6
  • outgoing trustees should, in most cases, avoid retention of the entire trust fund as security for their outstanding costs, particularly where the value of the trust fund considerably exceeds their outstanding costs;7
  • outgoing trustees should make reasonable enquiries as to the nature and amount of their contingent and future liabilities with respect to the trust and promptly communicate the outcome of those enquiries to the successor trustees;8
  • if the outgoing trustees’ maximum exposure is unknown, outgoing trustees can retain enough of the trust fund to cover the worst-case scenario, ‘calculated on reasonable and not fanciful assumptions’;9 and
  • outgoing trustees may, in certain circumstances, retain the entire trust fund for their liabilities where the maximum amount of those liabilities cannot be ascertained.10 However, the circumstances where this is appropriate are: (i) likely to be exceptional; (ii) may only exist for a limited period following the outgoing trustees’ retirement or removal; and (iii) the outgoing trustees would need to reasonably demonstrate why doing so is reasonable and proportionate in the circumstances.

Provision of trust records to the successor trustees

In certain cases, the outgoing trustees of a particular trust may consider that their retention of shares in a private company or an investment portfolio, which is effectively controlled by the settlor (apparently determined to frustrate the outgoing trustees’ attempts to access trust assets), does not constitute reasonable security for the outgoing trustees’ liabilities. In these circumstances, the outgoing trustees may consider it reasonable that they retain the entire trust assets (including the trust records) as a lien until they reach an agreement with the successor trustees regarding the outgoing trustees’ security.

The above starting point would rarely by itself, if at all, be considered proactive or reasonable, notwithstanding the apparently unreasonable approach being adopted by the settlor. As a priority, outgoing trustees should proactively and efficiently:

  • ascertain the nature and extent of their outstanding costs and the estimated costs of the transfer process and provide this information to the successor trustees;
  • take reasonable steps to determine the nature and extent of their liabilities;
  • inform the successor trustees of the nature of their concerns in as much detail as reasonably possible given the information available, even if the outgoing trustees do not yet clearly understand the nature of their liabilities; and
  • propose to the successor trustees a procedure and timetable pursuant to which the issue of the outgoing trustees’ security may be resolved, taking into account the information regarding the outgoing trustees’ liabilities available, the nature of the trust fund, the impact of costs and delays on the successor trustees’ ability to properly administer of the trust, the interests of the beneficiaries, and any other relevant factors.
  • Successor trustees will be unable to effectively administer the trust and fulfil their duties without at least having access to
    • trust and supplementary instruments;
    • the beneficiaries’ identity and contact details; and
    • current details of the trust’s assets and liabilities.

On most occasions, where the trust fund is illiquid or inaccessible to the outgoing trustees, the successor trustees and any other parties that exert practical control over all or part of the trust fund should facilitate the provision to the outgoing trustees of a reasonable sum from the trust fund or some other source to secure the outgoing trustees’ costs of making key trust records available.

It may be unreasonable for successor trustees, by accepting their appointments as trustees, to place themselves in a position where neither they nor the outgoing trustees have any access to the liquid trust assets or other means to fund the transfer of administration. Successor trustees, before accepting their appointment and as part of their due diligence, would place themselves in a better position to manage the negotiation process if they have made reasonable enquiries to ascertain:

  • the nature and value of the trust assets, including the liquidity of the trust fund;
  • the nature and extent of the settlor’s or beneficiaries’ direct or indirect control over trust assets;
  • the outgoing trustees’ current position in relation to security for their liabilities; and
  • the likelihood of any difficulties that either party may experience accessing trust assets to fund the cost of work performed by either party in connection with the transfer process, or provision of security to the outgoing trustees.

Where the outgoing trustees do not have control over the trust fund, the successor trustees should make a payment into the outgoing trustees’ client account or an escrow account to secure the outgoing trustees’ reasonable costs of providing the trust documents the successor trustees require.11

This approach is appropriate even if the successor trustees consider they may have claims against the outgoing trustees that would require the outgoing trustees to compensate the trust fund or are not able to procure a payment into an escrow account out of the trust fund.

The outgoing trustees may, rightly or wrongly, consider that the successor trustees’ claims for compensation do not have any merit. In any event, it will usually be practical for the argument and determination of such claims to be deferred until the transfer of administration has been completed. The successor trustees’ provision of security to the outgoing trustees would not ordinarily constitute a waiver of claims they have against the outgoing trustees regarding their administration of the trust.

The outgoing trustees should provide the trust records requested by the successor trustees promptly on receipt of security for their costs of providing the records and notwithstanding that they may have liabilities for which they consider they will be entitled to reimbursement out of the trust fund.

The importance of transparency

It is insufficient for the outgoing trustees to simply refer the successor trustees to the settlor or the protector or other persons so the successor trustees can, in effect, initiate their own fact-finding exercise regarding the outgoing trustees’ liabilities. It is the outgoing trustees who need to inform the successor trustees directly of the nature and basis of the outgoing trustees’ liabilities.

The circumstances in which courts may require settlors or beneficiaries to provide outgoing trustees with indemnities on retirement or removal are limited

The outgoing trustees may wish to obtain independent advice about the nature of their liabilities. The outgoing trustees’ desire to obtain such advice should not delay the outgoing trustees from explaining to the successor trustees the rationale for their preliminary opinion that they may be personally exposed to liabilities that, for example, require security above the standard indemnities provided in the STEP Guide.

Contingent liabilities and the probability that they will materialise

Frequently, contingent liabilities that are unlikely to materialise may be appropriately secured simply by the indemnities suggested by the templates contained in the STEP Guide. There are occasions where the templates in the STEP Guide may be unsuitable and/or indemnities may be almost worthless given the nature of the trust and the trust assets.12

However, the outgoing trustees should provide a detailed explanation to the successor trustees if they consider this to be the case.

Where there is ongoing disagreement about the probability of liabilities materialising, the parties should explore whether:

  • security made up of a combination of cash, charges over trust assets and indemnities is appropriate; and
  • putting in place a timetable pursuant to which the outgoing trustees may release one or more assets retained as security at certain agreed stages, taking into account the nature of the claims and limitation periods on which the parties acknowledge it is less probable that the liabilities will arise; or
  • a preliminary independent opinion on the issue would assist resolution; or
  • an independent expert determination is required.

The successor trustees should seek to offer a constructive alternative proposal to the outgoing trustees where they consider that the provision to the outgoing trustees of certain trust assets or types of security would have a material adverse impact on the administration of the trust.

There may be instances where the nature of the trust and the trust assets are such that the successor trustees are unable to provide security, including an indemnity, of any real value to the outgoing trustees. In these circumstances, it may be that the settlor can provide, or would be required to provide, security to the outgoing trustees.

The Court considered this in the recent English case of Oakhurst v Blackstar.13 In this case the settlor (Oakhurst) had established four employer-funded retirement benefit trust schemes (the schemes). The schemes were established primarily to provide benefits for directors of Oakhurst. Blackstar was the trustee of each of the schemes and Oakhurst purported to remove Blackstar as trustee and appoint a successor trustee (Church Street Trustees Ltd – ‘Church Street’) in Blackstar’s place for each scheme.

Oakhurst brought proceedings seeking declarations to confirm that Blackstar had been removed as trustee of each scheme and that Church Street had been appointed trustee in Blackstar’s place, and to clarify ‘what was required to be provided [to Oakhurst] by way of reasonable security and indemnities’ in the circumstances.

The circumstances were unusual because:

  • the trusts’ or schemes’ funds, in each case, essentially consisted of choses in action to recover unsecured loans receivable owed by directors or employees of Oakhurst to the trustees of respective schemes; and
  • the schemes were of a nature where it was possible that arrangements would be implemented after Blackstar’s removal, which would significantly reduce the value of the choses in action and, accordingly, the value of the indemnities provided by Church Street to Blackstar.

The Court ultimately determined that:

  • Blackstar was unlikely to be exposed to any liabilities but, despite that, no ‘reasonable professional advisor could reach the conclusion that the risk of potential liability [was] absolutely nil’;
  • it was not a case where the outgoing trustee ‘should be left to bear whatever degree of risk there might be of a potential liability where it runs the further risk of there being no worthwhile indemnity in relation to it’;
  • while it, or the parties, could consider placing further restrictions upon successor trustees in relation to the manner in which the successor trustees dealt with the schemes’ funds (to preserve the value of the indemnities) to do so may be objected to as an excessive fetter to the discretion of the successor trustees and, accordingly, it was reasonable to consider other alternatives;
  • ‘the persons who stand to benefit from the schemes’ were the claimants, namely Oakhurst and its directors and employees;
  • Oakhurst’s financial position was such that it could meet its obligations to Blackstar if it provided the indemnities contemplated by the trust instruments;
  • ‘as between the outgoing trustee and the claimants… the claimants and not the outgoing trustee should bear any risk which might be involved’, and accordingly Oakhurst was required to provide the indemnities to Blackstar, substantially in the form contemplated by the terms of each scheme; and
  • the indemnities provided by Oakhurst could carefully set out the circumstances in which Blackstar could claim against any remaining trust assets and the circumstances in which it can claim under the indemnity to manage Oakhurst’s concern that its provision of the indemnities may give rise to a tax charge.

As a slightly separate but noteworthy point, the Court considered that, given the wording of the indemnities provided by Church Street to Blackstar, where a beneficiary received a distribution and provided indemnities to Blackstar in the same form, the beneficiary would not, for example, be obliged to indemnify Blackstar (or the trustee who made the distribution) for the amount the beneficiary spends (as opposed to distributes), and procure an indemnity from the third-party recipient who receives the amount spent by the beneficiary.

It remains to be seen whether a court would require settlors of family discretionary trusts to provide indemnities to outgoing trustees where the settlor has little or no ongoing involvement with the trust. The provision of an indemnity or other form of security from settlors, or perhaps even beneficiaries in certain cases, to the outgoing trustees can be explored by the outgoing trustees and successor trustees as part of the negotiation process in relation to the outgoing trustees’ security. However, the circumstances in which courts may require settlors or beneficiaries to provide outgoing trustees with indemnities and other security on retirement or removal are likely to be limited.

Trust service providers may consider including a requirement in their terms and conditions (to which the settlor is a party) for the settlor to provide a specific indemnity (and other forms of security if reasonably required) to the outgoing trustees immediately before their removal or retirement. The actual indemnity may be included in a letter of engagement. It is another matter whether the indemnity is ultimately of any value when circumstances for enforcement of the indemnity may ultimately arise, taking into consideration the financial circumstances and location of the settlor at the time of enforcement, and the possibility that a court may strictly construe whether the indemnity is enforceable in the circumstances that exist when the trust service provider seeks to enforce the indemnity.

Outgoing trustees should not, for example, be required to readily accept a charge over shares or other assets that are subject to considerable direct or indirect influence by the settlor. This is particularly so where the settlor’s conduct suggests that they may seek to frustrate the outgoing trustees’ legitimate access to, or enforcement of, the security.14

Retention of the entire trust fund

Where it should be clear that the value of the trust fund will significantly exceed the liabilities of the outgoing trustees, and outgoing trustees have control of the trust assets or access to liquid assets within the structure, the outgoing trustees should transfer sufficient trust assets to the successor trustees to enable them to settle expenses and make distributions without recourse to the outgoing trustees.

The outgoing trustees should, from time to time, particularly as further information clarifying the nature of their liabilities becomes available, consider the extent that they can transfer trust assets into the control of the successor trustees. The outgoing trustees should not retain trust assets that they reasonably consider, on a conservative basis and with the information they have available from time to time, are not required to secure their liabilities.

It is likely that, at earlier stages, without the benefit of expert advice, the outgoing trustees would adopt a more conservative approach than they would after receiving advice that assists them to understand the nature of their liabilities. This is understandable and reasonable, albeit the outgoing trustees should be mindful of potentially adverse cost consequences they may suffer as a result of their failure to promptly mobilise to ascertain their exposure when it became reasonably clear that successor trustees were likely to be appointed to replace them. However, the outgoing trustees’ transfer of at least part of the trust assets in the manner outlined above to some extent demonstrates their recognition of the legitimate needs of the successor trustees and may help to facilitate more collaborative negotiations and reduce their exposure to adverse costs orders.

This approach is not inconsistent with the language contained in Article 34(2) TJL and s43(1)(b) TGL, or other provisions of TJL and TGL, which do not provide that outgoing trustees may ignore the impact of their retention of trust assets on the administration of the trust and the interests of the beneficiaries as a whole by, for example, retaining a sum that is clearly disproportionate to their exposure15 for any period of time.

Independent advice

Outgoing trustees may fear they may be exposed to liabilities but simply have insufficient information to ascertain the nature of their liabilities. Accordingly, the outgoing trustees may wish to obtain advice on those issues. Advice may be required in more than one jurisdiction.

Successor trustees may be reluctant to entertain the outgoing trustees’ request for time and funds with which to procure advice regarding the outgoing trustees’ liabilities where:

  • the outgoing trustees have known for some time that they were soon to cease acting as trustees yet did not procure such advice;
  • the successor trustees firmly believe that the outgoing trustees are not exposed to any liabilities other than costs the outgoing trustees may charge or incur in connection with the transfer of administration;
  • the lawyers advising the outgoing trustees on the transfer of administration should be in a position to provide preliminary advice to the outgoing trustees (to share with the successor trustees) regarding the nature of the outgoing trustees’ liabilities;
  • it could take a long time for the outgoing trustees to procure the advice and the advice may be equivocal; or
  • the successor trustees are under considerable pressure from the settlor and beneficiaries to get the trust assets into their control so that the relationship with the outgoing trustees is concluded and the successor trustees can focus on the day-to-day administration of the trust.

In these circumstances, the outgoing trustees should consider:

  • instructing an advisor to provide impartial preliminary advice;
  • informing the advisor that the advice will be provided to the successor trustees who may later wish to jointly instruct the advisor to provide a more substantive report, if considered appropriate; and
  • providing the successor trustees with the outgoing trustees’ instructions to the independent advisor and the advisor’s fee estimate, advice and invoice.

Frequently, presuming the preliminary advice arranged in the above manner is obtained at a modest or reasonable cost and does not reveal the outgoing trustees’ concerns to be fanciful, the successor trustees will have difficulty arguing that the costs of such advice should not be met from the trust fund, notwithstanding that the advice determined, on a preliminary basis, that the outgoing trustees clearly have no exposure or minimal exposure, or that their exposure is unlikely to materialise.

Persuasive independent preliminary advice that indicates that there is a realistic possibility that the outgoing trustees are exposed to material liabilities should influence the successor trustees to consider jointly instructing or otherwise providing the outgoing trustees with security for the costs that they are likely to incur when obtaining a more substantive report from the advisor.

The outgoing trustees should be as transparent as possible with the successor trustees about their intention to seek independent advice, the costs of the advice, their instructions and the advice itself, regardless of the successor trustees’ apparent attitude toward the outgoing trustees obtaining the advice.

Presuming preliminary advice is obtained at a modest or reasonable cost, successor trustees will have difficulty arguing that the costs should not be met from the trust

Suggested procedure

In many cases, the following procedure should balance the legitimate interests of the outgoing trustees, successor trustees and beneficiaries. The procedure is proposed on the basis that it would be implemented in conjunction with guidance that courts have provided, with emphasis on the obligations of outgoing trustees, when transferring trusteeship16 and focused on facilitating a cost-effective and efficient resolution.

Once the outgoing trustees should reasonably expect that their retirement or removal is inevitable, they should consider the liabilities to which they may be exposed and, particularly if they do not understand the nature their exposure, procure impartial preliminary advice about their concerns.

The successor trustees should, before their appointment, make enquiries to ensure that on their appointment, assuming the outgoing trustees do not seek to retain the entire trust fund as security, they will have access to liquid trust assets to fund the outgoing trustees’ costs to transfer trusteeship and manage the process to determine the outgoing trustees’ security for their costs and liabilities.

The outgoing trustees should, as soon as practicable (in many instances this will be immediately after the successor trustees’ appointment), provide the successor trustees with:

  • details of their concerns about their liabilities and a copy of any advice they have obtained about the nature of the liabilities;
  • copies of the outgoing trustees’ outstanding invoices, complete with narrative breakdowns and relevant fee schedules; and
  • an itemised preliminary estimate of the outgoing trustees’ costs of completing the transfer of administration, including resolution of the outgoing trustees’ security.

The successor trustees should facilitate the provision of security to the outgoing trustees, in the form of liquid assets sufficient to comfortably discharge the outgoing trustees’ costs in connection with:

  • providing the trust records required by the successor trustees;
  • transferring administration of the trust and its assets to the successor trustees; and
  • obtaining advice in connection with their liabilities (assuming this has not already been done).

If the trust fund is illiquid, the successor trustees should provide the outgoing trustees with cash as security (from their own funds at first instance, if necessary) sufficient to comfortably discharge the outgoing trustees’ estimate of their costs in connection with providing the trust records requested by the successor trustees.

The outgoing trustees should promptly provide the successor trustees with the trust records they require, on receipt of security to meet their costs of providing those documents.

If the trust fund includes sufficient liquid assets that the outgoing trustees’ reasonable claims for security are not compromised, the outgoing trustees should, as soon as possible after the above steps, facilitate provision to the successor trustees of liquid assets sufficient to:

  • meet the successor trustees’ costs and expenses in connection with the day-to-day administration of the trust for at least a six-month period (the period in which the issue of the nature and extent of the outgoing trustees’ security should comfortably be resolved); and
  • make distributions and payments, such as annual distributions, of which the beneficiaries had a reasonable expectation, as long as the provision of assets would not, on a conservative basis, materially prejudice the outgoing trustees’ security.

At the same time, the outgoing trustees should consider, on a conservative basis, whether they can transfer assets to the successor trustees greater in value than that set out above without, on a conservative basis, compromising their reasonable requirements for security.

If the outgoing trustees consider that they require substantive advice and the successor trustees do not wish to jointly instruct an independent expert to determine the nature of the outgoing trustees’ liabilities, the outgoing trustees should:

  • prepare instructions to an advisor on the basis that the advisor is impartially advising both the outgoing and successor trustees, and provide a copy of these instructions to the successor trustees;
  • procure an itemised estimate from the advisor and provide this to the successor trustees before the advisor proceeds;
  • consider obtaining preliminary advice first if the costs of substantive advice are significant; and
  • provide the successor trustees with full copies of the advice, regardless of whether the successor trustees agree that the advice is necessary or that the advisor’s costs are a reasonable trust expense.

On receipt of the advice, the outgoing trustees should consider the nature of their liabilities, the assets contained in the trust fund and the efficient administration of the trust and (so far as the composition of the trust fund makes it possible) transfer to the successor trustees further trust assets that the outgoing trustees consider, on a conservative basis, they do not reasonably require to secure their liabilities, and make a proposal to the successor trustees detailing: (i) the nature of the security the outgoing trustees require, with reference to particular trust assets (for example, whether cash, portfolio accounts or charges over particular trust assets); (ii) the rationale for their requirement for those particular trust assets to be provided as their security; and (iii) a timetable of when they propose the assets provided as security shall be released to the successor trustees, paying particular regard to limitation periods and other contingencies that may, if overcome, remove or reduce the outgoing trustees’ exposure.

At this point, in most cases, the successor trustees have a considerable proportion of the trust assets under their control and both parties should have a relatively clear understanding of the outgoing trustees’ liabilities to sensibly resolve the matter to facilitate mediation, a binding independent determination of any issues still in dispute or, if necessary, a court application.

Conclusion

Notwithstanding any breakdown of the relationship between the settlor or beneficiaries and the outgoing trustees, it is in the successor’s and successor trustees’ interests (if not all interested parties), during the period of the transfer of administration of a trust, to adopt and maintain, as far as possible, a collaborative approach to negotiations, balancing, as objectively as possible, the legitimate interests of the successor trustees, the outgoing trustees and the beneficiaries.

In some instances, the procedure may be frustrated by the refusal of the settlor or other third parties to make available any liquid assets of the trust fund to pay for resolution of the dispute and the trust administration costs. In these circumstances, court proceedings may be required against one or more of those third parties to place the trust assets into either the outgoing or successor trustees’ control.

The objective of all parties should be to ascertain, on a reasonable and conservative basis, the appropriate nature and level of the outgoing trustees’ security and to transfer the balance of the trust assets into the control of the successor trustees efficiently with a minimal impact on the administration of the trust. These objectives will often be achieved by implementing a structured procedure, rather than aggressively or prematurely seeking an immediate resolution. The parties that embrace this approach will, if the matter cannot be resolved, be in a stronger position to maximise recovery of their costs and minimise the possibility of damage to their reputation due to criticism from a court or regulator.

  • 1. Eiro Equinox Trustees Ltd [2006] JRC 119; Representation of the Jeep Trust [2010] JRC 075.
  • 2. For example, the outgoing trustees’ entitlement to a lien under s44 TGL and the obligation of the incoming trustee to get the trust assets under its control.
  • 3. Richard Williams TEP, Arabella Saker TEP, Toby Graham TEP, A Practical Guide to the Transfer of Trusteeships, 2nd ed, Society of Trust and Estate Practitioners, 2011.
  • 4. Note that the Trusts (Amendment No. 5)(Jersey) Law 201- was adopted by the States of Jersey on 3 November 2011. The amendments include, among other things, that an outgoing trustee has a right to enforce a term of a contract providing its reasonable security against liabilities even if it is not a party to the contract.
  • 5. Ogier Trustee (Jersey) Ltd v CI Law Trustees [2006] JRC 158; Re Caversham Trustees Ltd [2008] JRC 065.
  • 6. Re Caversham Trustees Ltd, op cit.
  • 7. Re Carafe Trust [2005] JLR 159 at para 37.
  • 8. Wester v Borland [2007] EWHC 2484 (Ch).
  • 9. Concord Trust v The Law Debenture Trust Corporation plc [2004] EWCA Civ 1001.
  • 10. X v A [2000] 1 All ER 490.
  • 11. Along the lines contemplated in Re Carafe, op cit.
  • 12. For example in Oakhurst Property Developments and Others v Blackstar (Isle of Man Ltd and Church Street Trustees Ltd) [2012] EWHC 1131 (Ch), where the trust assets consisted of a unsecured loan receivable and a small sum in cash and where the scheme in which the trust involved rendered it possible that the value of the chose in action in relation to the loan receivable could be significantly reduced in value without the successor trustee making a distribution of all or part of that chose in action.
  • 13. Ibid.
  • 14. For example, albeit perhaps an extreme case, in Caversham Trustees Ltd v Patel and Others [2007] JRC 070 and related proceedings the outgoing trustees were granted security for their outstanding fees in the form of a charge over shares in a company that was controlled by the settlor. Notwithstanding that, the settlors’ reputable Jersey lawyers were provided with the share certificate of an underlying company of the trust to hold as security on behalf of the outgoing trustees, the outgoing trustees remained as directors of the underlying company, court orders of the Jersey Court compelled the settlor to honour the security arrangement, the settlor fraudulently sold the property held by the underlying company and retained the proceeds.
  • 15. Re Caversham, op cit.
  • 16. e.g. in Re Caversham, op cit.
Author block
Right
Ashley Fife

Ashley Fife TEP is the Head of Legal at TMF Group, Jersey.

Topic
Trusts
Section
STEP Journal
Country
Guernsey
Jersey