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Unhappy beneficiaries or potential beneficiaries will often seek trust-related documents when there are concerns that the trustees have not administered the trust properly. Often, the request for trust-related documents arises before legal proceedings are formally initiated, for example, when the beneficiary is assessing whether there is any basis for challenging the trustees’ administration of the trust.

Are beneficiaries actually entitled to this information and do trustees have a duty to disclose? This article explores the legal framework behind these questions and provides examples of how such requests are treated in practice. 

Why do beneficiaries seek trust-related documents?

There are good reasons why beneficiaries may seek copies of trust-related documents. Amongst other things, they can shed light on:

1. the assets held within the trust fund and whether obtaining further legal advice or litigating is commercially viable;
2. the distributions that have historically been made by the trustees and the basis upon which those distributions appear to have been made;
3. how the trust fund has been managed, for example, has the investment strategy opted for annual income generation at the expense of capital appreciation?
4. whether the trustees have breached the terms of the trust.

Balancing accountability and confidentiality

When dealing with beneficiaries’ requests for copies of trust-related documents, trustees face an important trade-off. On the one hand, trustees are fiduciaries, and beneficiaries must receive sufficient information to understand the trust, indeed, in Armitage v Nurse and others [1998] (Ch) 241, Millett LJ recognised that trusteeship includes the trustee’s duty to account to beneficiaries. However, on the other hand, trust documents will often contain sensitive information concerning the settlor’s wishes, and in discretionary trusts, the law needs to protect the discretionary nature of trustee decision-making – trustees should feel free to make decisions without undue scrutiny from (potentially) disappointed beneficiaries.

Furthermore, disclosure to one beneficiary may promote accountability but also prejudice other beneficiaries or be contrary to the interests of the trust as a whole. The law, therefore, does not give beneficiaries an unrestricted right to all trust-related documents held by trustees. Disclosure of trust-related documents, therefore, is a balancing exercise that depends on the nature of the requested document, the purpose of the request, any competing confidentiality concerns, and the nature of the requesting beneficiary’s interest.

The legal framework

Traditionally, a beneficiary’s right of access to trust documentation was often explained by the beneficiary having a proprietary interest in the trust property, that is, a legally recognised interest in trust property, with the strict legal ownership remaining with the trustees. This approach was somewhat outdated, originating from less complex times where trusts typically conferred only fixed interests.

The more modern authority comes from the case of Schmidt v Rosewood Trust Ltd [2003] UKPC 26 (‘Schmidt’), where the Privy Council held that a beneficiary’s right to inspect trust documents is better understood as an aspect of the court’s inherent jurisdiction to supervise the administration of trusts, with a proprietary interest “neither necessary nor, by itself, sufficient to establish an entitlement to disclosure.”

Moreover, the court held that there was “no reason to draw any bright dividing line either between transmissible and non-transmissible (that is, discretionary) interests, or between the rights of an object of a discretionary trust and those of an object of a mere power.” Indeed, in Schmidt, the claimant, whose application for disclosure succeeded, was the object of a wide discretionary power to add further beneficiaries. Importantly, however, the court also held that no class of beneficiary has any entitlement as of right to disclosure of any document.

How should trustees approach requests for disclosure?

Following Schmidt, when faced with the decision whether to disclose trust-related documents to a beneficiary, trustees (and the court, if the matter becomes litigious) should consider a range of relevant factors, including:

1. the nature and strength of the beneficiary’s (or object of a power’s) interest;
2. what sort of documents ought to be disclosed and the form of disclosure; and
3. what safeguards can be imposed to limit the use of the disclosed trust-related documents.

It can be concluded that the traditional approach of classifying specific documents as ‘trust documents’ (to which there is no clear absolute definition) remains somewhat relevant but is no longer the decisive gateway for disclosure to beneficiaries. The decision whether to disclose trust-related documents to beneficiaries should ultimately involve a balancing exercise, taking into account the strength of the beneficiary’s interest alongside the other relevant considerations referred to at points 1-3 above.

Disclosure in practice

Different categories of trust-related documents will be treated in different ways, and I have set out a few practical examples below.

The practical position is that, as trustees are under a duty to account to beneficiaries, trustees will ordinarily require good reasons to refuse disclosure of the trust’s accounts, although trustees should still satisfy themselves that disclosure of the trust accounts is in the best interests of the trust as a whole.

Documents recording trustees’ reasons and deliberations relating to the exercise of powers, for example parts of trustees’ meeting minutes, sit at the other end of the spectrum and are more strongly protected. However, a distinction needs to be made between reasoning that concerns administrative powers (trustee powers enabling trustees to manage or administer trust property) and dispositive powers (trustee powers to determine who benefits from the trust property and to what extent); the latter is more strongly protected from disclosure. For example, in Lewis v Tamplin [2018] EWHC 777 (Ch), the court rejected the submission that the Re Londonderry principle (that trustees exercising discretionary powers are generally not required to disclose to beneficiaries the reasons for their decisions or the details of their deliberations) extends to the exercise of administrative powers.

With regard to letters of wishes, the starting point is that letters of wishes are generally treated as confidential and not disclosed to beneficiaries as of right. Strictly speaking, letters of wishes are not trust documents, but non-binding instructions written by the settlor to the trustees to guide the exercise of their discretionary powers, often containing highly sensitive personal information. Although, the case of Breakspear v Ackland [2008] EWHC 220 (Ch), shows this starting point is not absolute, and can be departed from in specific circumstances where the court deems it necessary. 

How we can help

Sinclair Gibson LLP acts for both trustees and beneficiaries of domestic and offshore trusts of varying sizes. We can advise on the disclosure of trust documents and information, including acting in proceedings concerning beneficiaries' disclosure requests that invoke the court's supervisory jurisdiction over trusts, typically brought under Part 8 of the Civil Procedure Rules. We also work closely with our Private Client department and can advise trustees on applications for court directions in relation to disclosure issues, particularly where questions of confidentiality or competing beneficial interests arise.  Please contact litigation partners, Henry Hickman or Amy Williams, if you would like to discuss these issues further. 

Henry Hickman | Sinclair Gibson

Amy Williams | Sinclair Gibson