19 May 2016

Preventing trustees from withholding information


Although Blades v Isaac is primarily a costs decision, it raises interesting issues as to executor accountability and access to information where an estate passes on wide discretionary trusts.

Background

The case concerns the estate of Mrs Valerie Mary Lee, who died on 19 June 2013 in tragic circumstances.

She left a will directing that the whole of her estate – some £903,574 – be left on discretionary trusts for a class of beneficiaries including her younger daughter ('Mrs Blades'), Mrs Blades' husband and children and her domestic cleaner.

She named three individuals to act at executors and trustees of whom only one, Mr Isaac (a partner in the firm of solicitors – Tanners – responsible for drafting the will), was willing and able to act. He appointed a fellow partner, Mr Alexander, to be his co-trustee.

Mrs Lee's elder daughter, Mrs Binder, was not initially included within the class of discretionary beneficiaries because, it was said, there was a history of family discord arising from a disagreement between Mrs Binder's husband and her father, which soured relations between Mrs Binder, her mother and Mrs Blades.

However, Mrs Lee left a letter of wishes explaining that relations with her elder daughter had improved recently and that the trustees should consider advancing 5% of the trust fund to Mrs Binder after making various other gifts.

Mr Isaac and Mr Alexander duly added Mrs Binder to the class of discretionary beneficiaries on 1 October 2014. Distributions were subsequently made to each of the discretionary beneficiaries (save Mrs Blades' husband).

Proceedings

It appears Mrs Blades was dissatisfied with Mr Isaac and Mr Alexander from the outset (although not, she said, as a result of the arrangements regarding Mr Binder); she took particular offence at a letter from Tanners asking her (and Mrs Binder) to limit communications with Mr Isaac as they would 'only add to the costs of the administration.'

She sought a detailed breakdown of her late mother's estate on a number of occasions. However, Mr Isaac and Mr Alexander refused on advice from junior chancery counsel and on the basis that the estate accounts were confidential to the executor and the trustees.

Mrs Blades complained that if Mr Isaac were correct, in circumstances where he was also a trustee and his co-trustee was a fellow partner in the firm conducting the estate administration, there was nobody independent able to scrutinise the estate administration or Tanners' charges.

She issued an application seeking (i) an order that Mr Isaac as executor provide a full inventory of the estate and account of his dealings with it and a breakdown of Tanners' charges; (ii) if necessary, an order requiring Mr Isaac and Mr Alexander as trustees to obtain that information from the estate and provide it to the beneficiaries; (iii) information relating to the assets of the will trust; and (iv) costs of the proceedings from Mr Isaac and Mr Alexander personally ie they should be permitted to reimburse themselves from the estate or the trust.

In evidence, Mr Isaac and Mr Alexander said that they were aware of the difficult family history and that they had genuine concerns that provision of the information Mrs Blades sought would cause difficulties between the sisters. However, after close of evidence, and on advice from different chancery counsel, they agreed to provide the information Mrs Blades sought.

The hearing, when it took place, therefore focussed on the question of costs and whether Mr Isaac and Mr Alexander had behaved in a way which justified depriving them of the trustees' usual indemnity from the trust fund. The Master's view was that it did not, albeit that Mr Isaac and Mr Alexander changed their minds about the question of disclosure some way into the proceedings.

Accountability

Where the judgment is, perhaps, of wider interest is the Master's comments on the subject of the ultimate beneficiaries' rights to information and an account where a will creates a structure involving two (or more) levels.

In summary, where an estate is left on discretionary trust, it is for the trustees, at the upper level, as legatee to hold to account (including as to administration charges) the personal representative responsible for administering the estate and passing assets to the trustees.

At the lower level, the ultimate beneficiaries may hold the trustees to account for what they receive and how they administer those assets. However, a beneficiary of a will trust is not a legatee of the estate and cannot personally claim rights to information concerning the estate.

Instead, because a trustee's rights to information as the legatee of an estate properly form part of the trust estate, a beneficiary of a will trust is entitled to claim as against the trustee that it should exercise its rights to information from the estate.

Where a will trust trustee is unable or unwilling to exercise its right as legatee to call for information concerning an estate, a beneficiary may exercise those rights themselves on behalf of the trust (and all of the beneficiaries) by way of a 'derivative' claim.

Another way in which a beneficiary of a will trust might achieve the same end is to rely on the trustee's duty to ensure that the correct assets had been paid over to it by the personal representative and to mount a breach of trust claim if that duty was not fulfilled.

It is through these processes, and not by seeking information directly from personal representatives, that a beneficiary of a will trust is able to ensure that the estate from which his or her interest derives is administered properly and that any executor who is also appointed trustee of a will trust is held to account.

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