Trusts / Asset Planning
In our previous article on trustees’ disclosure to the beneficiaries we summarised the requirements of the Trusts Act 2019 (the Act) in relation to disclosure. This article provides trustees with more detailed guidance on how they should approach disclosure to beneficiaries.
There is a presumption in the Act that the trustees must disclose basic trust information to every beneficiary or representative of a beneficiary, and trust information to beneficiaries who request it.
However, before deciding whether to provide either basic trust information or trust information that has been requested, the trustees must consider the factors set out in section 53 of the Act (s53 factors) discussed below.
Section 53 Factors
The factors to be considered by the trustees when deciding whether information should be disclosed to beneficiaries include:
- the nature of the interest held by the beneficiary and the likelihood of them receiving trust property.
- whether the information is confidential.
- the expectations and intentions of the settlor on establishment of the trust as to whether beneficiaries would be given information.
- the beneficiaries’ ages and circumstances.
- the effect on the beneficiary of giving the information.
- in the case of a family trust the effect of giving information on relationships within the family, and whether in terms of the relationship between the trustees and other beneficiaries the provision of information would be to the detriment of the beneficiaries.
- the effect on the beneficiaries and third parties, of giving the information.
- if a trust has many beneficiaries, whether it is practical to give information to all beneficiaries.
- the nature and context of the information request.
- whether it is practical to place restrictions or safeguards on how the beneficiaries can use the information or to redact some of the information.
Basic trust information
The basic trust information is:
- The fact that a person is a beneficiary.
- The name/s and contact details of the trustees.
- The occurrence of, and details about, any change to the trusteeship.
- The right of a beneficiary to ask for a copy of the trust deed or trust information.
If, after taking into account the s53 factors, the trustees reasonably consider the basic trust information should not be made available to every beneficiary they may decide to withhold some or all of that information from one or more particular beneficiary or class of beneficiary.
There is an obligation on the trustees to make an active decision as to whether the basic trust information is made available. This obligation is an ongoing one. The trustees are required to consider at reasonable intervals whether they should be making the basic trust information available.
Trust information that has been requested
There is a presumption that the trustees must, within a reasonable period, give a beneficiary or a representative of a beneficiary any trust information requested. However, if the trustees decide, after considering the s53 factors, that the information should not be given to the beneficiary they may refuse the request for trust information.
Trustee’s determination on the provision of information
It is the trustees’ task to ascertain what the consequences will be if information is or is not released. Release of information might lead to family disharmony or court proceedings but so can the withholding of information.
The trustees’ decision-making deliberations should be recorded in trustee resolutions. Trustees do not have to give beneficiaries the reasons for their decisions, but those reasons may be discovered in court proceedings.
The trustees’ consideration of the s53 factors is fact specific. It must relate to the specific trust and the relevant beneficiary of that trust. In determining whether to disclose information the trustees need to know:
- Why was the Trust originally created? What were settlor’s expectations about distributions from the trust – who and when? Was a Memorandum of Wishes signed when the trust was created?
- The terms of the trust deed/ instrument. Is the trust fixed or wholly trust discretionary? What are the terms of the trust regarding information disclosure? What are the beneficiary categories? What is the difference in the trustee discretions between, for example, Discretionary, Final, Default, Secondary or Primary beneficiaries in distributing trust property?
- Who is included in each beneficiary category? Are the beneficiaries named or a specific class, for example any trust settled by the settlor? Who fits into this class? Is it likely they will receive trust property?
- What is the circumstance of each potential beneficiary: their age, occupation, financial position, health? Do they have a partner? Do they have children? Are they involved in the family business? Do they own a home?
- Family dynamics – is the family close? Are there estranged family members? Status of partners?
- What assets are held in the Trust – the settlor’s home, closely held family business, diversified portfolio, commercial properties? What are the trust liabilities – loans from the settlor, commercial loans?
Sometimes, upon undertaking this detailed review, trustees determine that the trust no longer serves its intended purpose and decide to wind it up.
Commencement of Act
The Act came into force on 31 January 2021. As a result of this legislative change the trustee role has become even more onerous. It will be important for trustees to work closely with their lawyer to ensure that the new legislation is adhered to.
Need more information or help?
The team at Brookfields can provide practical advice and assistance tailored to your specific circumstances. Please let us know how we can help.
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This information is intended to be general in nature. You are strongly recommended to seek your own legal advice in relation to the matters dealt with here.