Beneficiaries' rights to information

Many family trust clients are surprised to learn that beneficiaries have a right to information relating to that Trust. What do beneficiaries have a right to know and why? 

Two of the fundamental duties of trustees are to administer the trust in accordance with the trust deed and to account to beneficiaries for the trust’s assets and income.

So that beneficiaries are satisfied the trustees are complying with their duties, they first must be aware that they are beneficiaries of a trust. This means beneficiaries arguably have the right to some basic trust information. So, the primary beneficiaries have a right to know that they are beneficiaries of the Trust.  But, beyond that there is less certainty.

What other information should be provided?  The Courts have said, bearing in mind that the majority of trusts have a number of beneficiaries: “the underlying principle in deciding whether disclosure should be made will be identifying the course of action which is most consistent with the proper administration of the trust and the interests of the beneficiaries, not just the beneficiary requesting disclosure” Erceg v Erceg [2017] NZSC 28.

The Supreme Court in Erceg identified the matters that the Court (and therefore trustees) should evaluate when a beneficiary seeks disclosure of trust documents. These include consideration of:

• The documents which the beneficiary is seeking to obtain – eg: the trust deed or the financial statements or resolutions;

• The context of the request and the objective of the beneficiary – is there tension between beneficiaries or beneficiary and trustee;

• The nature of the beneficiary’s interest – is the request from a primary beneficiary or a distant family member who may only benefit if primary beneficiaries do not receive distributions;

• Whether there are issues of personal or commercial sensitivity and whether disclosure can be made in a way that protects confidentiality – it may involve disclosure of other beneficiaries personal circumstances;

• Whether documents the beneficiary has requested disclose reasons for the trustees’ decision making – trustees are frequently advised not to record the reason for the decisions;

• The likely impact of disclosure on the trustees and other beneficiaries as well as the likely impact on the settlor and third parties; and

• Whether safeguards can be imposed on the use of the documentation that may be disclosed – eg limited disclosure to professional advisor.

While there is no absolute presumption as to the information that should be disclosed, the Supreme Court noted that there was an “expectation that basic trust information will be disclosed to a close beneficiary who wants it”.

In our view, there is a strong case for the disclosure of the trust deed and in some cases financial statements to the primary discretionary beneficiaries (this may include the settlors’ children and grandchildren and other named beneficiaries).  However, the provision of financial information may be inappropriate.  In Erceg the Court held that the conduct of the beneficiary seeking disclosure was such that there was “genuine concern” as to the use of the information and ultimately the Supreme Court declined to grant the order for disclosure which included financial statements.

If you are a trustee and you are unsure of your disclosure obligations we can assist you to determine the appropriate course of action.  The proposed Trust Bill will highlight the obligations of trustees and potentially generate greater enquiry from beneficiaries or those who suspect the existence of a family trust. More on the proposed changes in our next article.