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Relationship Property, Trustees, Trusts

Trusts – no place for puppets

The importance of genuine trust management cannot be overstated.  Although a common response to what are ofter seen as “rubber stamp” independent trustees, is to dispense with independent trustees altogether, this approach is dangerous and can make it difficult to evidence an effective trust.

The fact is, trust ownership can be a bit of a pain.  The price paid for the benefit of trust ownership is a relinquishment of total control.  For some people, this is unacceptable, and where this is the case, trusts may prove an ineffective form of property ownership.

However, where property is owned by trustees who work together in the interests of all of the beneficiairies, the incoveniences can be heavily out-weighed by the different skills the different trustees contribute.

Where an independent trustee, or any group of trustees are really acting only at the behest of one party, a trust may not provide the expected protection.

The recent England and Wales Court of Appeal decision in Whaley v Whaley highlights the risks where trustees can be shown to have regularly and routinely acted on a beneficiary or other interested parties’ instructions.  In this case, the court was happy to include the assets of trusts settled for the benefit of the husband within his effective control such that they could be taken into account when determining the amount of the property settlement his wife was to receive.  Upholding the decision of the lower court it was noted that “The judge’s relevant findings of fact were as follows. During the marriage the husband “simply made decisions as to the movement of funds and designated them to such settlement or asset as he deemed fit” (§ 68). He “simply told the trustees how the funds were to be deployed and they followed his instructions” (§ 71). Following the death of Mr Whaley senior the lead trustee (Mr Williamson, who subsequently became one of the Protectors) “became accustomed to doing the Husband’s bidding.” The husband “knew and expected all of his wishes would be followed” (§ 105). The same is true of his successor Mr Hess (§§ 106, 118). The husband had the use of funds whenever he wanted or needed them (§ 116). The trust operated flexibly “at the direction” of its beneficiaries (§ 117). Until these proceedings began in earnest “the trustees regarded the assets within the Husband’s designated fund as available for his use in such manner as he considered appropriate” (§ 60). The trustees will “continue to offer support and will effectively follow his instructions” (§ 143 (a)).”

Trustees that act at another party’s behest, while convenient, ultimately put the assets of a trust at risk, often from the very risks that trust has been settled to avoid.

References:

  • Whaley v Whaley [2011] EWCA Civ 617

 

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