Trustees are those appointed to hold and manage assets on behalf of another person. They can be appointed in a will, or by a separate trust deed. There can be more than one trustee, and they can be professionals or non-professionals. A trustee can also be a beneficiary of a trust.
Their role is to manage the “trust fund” and ensure it is managed for the benefit of the beneficiaries. The trust fund can be made up of cash, investments, property, or a combination of these. The trustees are expected to keep accounts recording any income and outgoings. They are also expected to act only in the interests of the trust (not their own), and to be accountable to the beneficiaries.
It is not uncommon for someone to create a trust in their will over part or all of their estate. There are various reasons someone may choose to do so, ranging from tax planning to protecting assets from an unpredictable or potentially irresponsible beneficiary. For example, if a parent knows that their adult child has a history of making poor financial decisions, they may not wish to have that child receive their inheritance directly. Instead, they may dictate that their inheritance pass into a trust and be managed for their child's benefit by trustees they consider responsible and can be relied upon to act in the best interests of their child.
The relationship between trustees and beneficiaries can be challenging. A beneficiary may see the trustee as someone who is preventing them from using their money and assets as they wish. They may take issue with having to ask trustees for money from the trust or see the trustees as overly protective of the trust fund. Sometimes this is for good reason – as above, it may be that the beneficiary is not considered to be responsible enough to look after the cash or other asset themselves, and it is in their best interests that someone else looks after them for them – but it can be the case that this position of power can be abused. For example, a trustee may take the view that a beneficiary's request for cash is unreasonable, whereas an independent third party may consider it entirely reasonable. There is a fine line for trustees between protecting the trust and not acting against the interests of the beneficiaries. If they don’t manage the situation appropriately, they can find themselves on the receiving end of criticism or, in a worst-case scenario, a claim. Of course, sometimes trustees can be on the receiving end of a claim, even if they have done nothing wrong.
There can also be disagreements between trustees. For example, they may disagree as to how a trust should be managed, whether it should be “wound up” (brought to an end), or whether to transfer cash or another asset to a beneficiary. There may also be issues if one trustee has acted in a way that another trustee considers breaches their duties. Again, in a worst-case scenario, this can lead to a claim by one trustee against another. In turn, this can cause issues with the beneficiaries if the trust ultimately ends up paying the costs of the dispute or suffers a loss as a result of it.
What is a breach of trust claim?
A breach of trust claim is a claim that can be brought by a beneficiary or a trustee against a trustee for failure to comply with their duties. For example, if a trustee fails to respond to a beneficiary's requests for information or a transfer of trust assets, they could be criticised for failing to act in the beneficiary's interests. If a trustee has mismanaged the trust fund (e.g. they have let a property that is in the trust fall into disrepair) and as a result the trust has suffered a loss, they may be in breach of their duty to protect trust assets.
A claim may be made for the trustee to be directed to do something (e.g. transfer a property to a beneficiary or provide them with information they are entitled to), or ultimately, if their failing is serious enough, the claimant may ask the court to order that they be removed as a trustee.
The costs of such a claim would need to be dealt with. As long as they act reasonably, trustees should be entitled to recover their costs of dealing with such a claim (as claimant or defendant) from the trust fund. This, of course, would affect the beneficiaries personally. As such, they may be ordered to pay their own costs if it would be deemed unconscionable for the beneficiaries to bear them. It is important, therefore, that trustees at all times act responsibly and in the interests of the trust, rather than themselves, in relation to any claim they make/defend. The risk if they do not, is that they could end up paying costs personally.
What are the main types of breach of trust?
The most common types of breach of trust claims are:
A claim that a trustee must provide information to a beneficiary that they are entitled to.
It is not uncommon for beneficiaries to feel that they have been “kept in the dark” about certain decisions the trustees have made. Whilst beneficiaries are not entitled to all information in this regard, they are entitled to certain information, and if the trustees fail to provide it, a beneficiary may have a legitimate claim to force them to do so.
A claim that the trustees are delaying in dealing with the trust.
Beneficiaries may feel that trustees are unreasonably delaying in making decisions regarding a trust. For example, a beneficiary may have requested that monies from the trust be advanced to them, and the trustees are failing to give a decision within a reasonable timeframe.
A claim that a trustee is conflicted.
It may be that a beneficiary believes there is a reason the trustee should not remain in their role, and the basis for that concern is often a conflict between the trustee’s own interests and the interests of the trust as a whole. The conflict can be any number of things, but common allegations are that the trustee is favouring one beneficiary over another for personal reasons, or the trustee is insisting that the trust cannot be wound up for reasons that benefit them rather than the trust as a whole.
Who can bring a claim against a trustee?
It is important to acknowledge that there is a distinction between making a claim against a trust and making a claim against a trustee. A claim against a trust is against the fund itself (for example, a claim by a non-beneficiary of the trust that they have an interest in an asset said to form part of the trust). A claim against the trustees is against them personally, for reasons that they have failed in their duties.
Anyone can, in theory, make a claim against a trust. Only certain people can make a claim against a trustee. Firstly, and the most obvious, a beneficiary can make a claim against a trustee. But a trustee can also make a claim against another trustee.
How do you resolve a breach of trust?
There are two different options for resolving a breach of trust: one, without involving the court; two, by making a claim to court.
Unless there are certain very specific circumstances, we would recommend that parties at least try to resolve a trust dispute without issuing a court claim. Usually, we start by setting out in writing the basis of a claim (a letter of claim, aka a letter before action), assuming we are acting for a claimant. If we are acting for a defendant, we will respond to the letter of claim. The parties may resolve the matter by correspondence, with any agreement reached recorded in a settlement agreement. However, typically disputes such as these end up in a mediation. This is a means by which the parties can hopefully reach an agreement with the assistance of a mediator, who will be an expert in matters such as these.
Only if agreement has not been possible would we recommend that a claimant issue a claim in court. There are different types of claims depending on the specific facts, but they typically follow the same course. There will usually be at least two hearings (the first being a directions hearing, and then the final hearing). The parties will be expected to exchange witness evidence and to comply with the requirements as to disclosure. There may also be expert evidence, and potentially an “FDR” hearing (a type of hearing sometimes ordered to enable the parties to try to reach an agreement without the matter proceeding to a final hearing).
Ultimately, if an agreement is not reached beforehand, the matter will be resolved at a final hearing, when a judge will decide whether the claim is successful. The judge will also make an order as to who pays each party’s costs.
This information is for guidance purposes only and does not constitute legal advice. We recommend you seek legal advice before acting on any information given.
