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Beneficiaries, Beneficiary rights, breach of trust, Capacity, Right to trust information, Settlors, trust, Trustees, Trusts, Variation

Trustees’ dilemma – how old is old enough to know?

The moral dimension of trusteeship arises in many contexts. The recent New Zealand court decisions concerning information obligations to beneficiaries, and the way this is dealt with in the new Trusts Bill, highlight the difficulty of judging what information is too much or too little to disclose. However, general principles on disclosure bypass the consideration of when there might be different levels of “reasonable” disclosure for different beneficiaries.

A court of equity in Jersey, in the Channel Islands (an important centre for offshore banking and trusts), had to deal with the question of whether trustees had been right to treat a young man who had already reached majority as still too young to participate in trust decision making and, in particular, the disclosure of important trust information that would be involved.

The trust needed the court to sign off on a dispute settlement with a former trustee by way of what is known as a “Beddoe application”. To do this required the agreement of beneficiaries so that the trustee needed to invite the beneficiaries to a Beddoe hearing. The trust fund was worth £75 million. There were three primary beneficiaries, two children the trust’s settlor and a grandchild who was aged 19 at the time.

Here the problem arose. Although the grandson was of age, and knew he was a beneficiary of the trust, he knew few other details – in particular of the size of the trust fund. At the request of the trustee, supported by the beneficiary’s mother, one of the other two beneficiaries, he was not served with notice of the Beddoe hearing. The reason for this decision was the fear of the trustee and the mother that the beneficiary might be harmed by knowledge of the size of the trust, expressing fears that he might give up his education and take to drink, drugs and a dissolute life. It was preferred that he therefore not be informed of the full details until the age of 21.

The Court weighed up whether it was obliged to consider human rights laws or other considerations. It considered the fact that the law confers capacity on people when they reach the age of majority, in this case 18. Ultimately it concluded that the trustees had valid reasons to reach the conclusion that it had, and that it did not see fit to overturn the “objectively sensible concern” that the trustees had.

The trustees’ approach to the other issues for decision was considered entirely appropriate and supported the courts finding that the trustees had considered all the issues in an appropriate and considered manner.

How would the New Zealand courts address such a dilemma? Could the same, or a similar, issue arise in New Zealand. Notwithstanding the path taken by the Supreme Court in Erceg v Erceg, the regime under the Trusts Bill is altogether more prescriptive and less discretionary. That does not mean similar issues might not arise in a different trust decision context. It is suggested that a different result could arise in New Zealand.

In the case of De Bernardo v De Bernardo the court’s consent was sought to a proposed variation in respect of a trust holding assets of $17 million.  The settlor wanted to add his stepchildren as beneficiaries, something that was not contemplated at the time of the trust’s formation. The settlor also wished to extend the trust’s 50-year period. Given the ages of the beneficiaries, the extension to the trust term could favour the granddaughter Darcy who was 16 as well as any unborn or adopted children. Other administrative variations were sought.

The lawyer acting for Darcy, and for the unborn potential beneficiaries, interviewed Darcy to obtain an indication of her view of the amendment to the deed. Darcy was aware that it was intended to extend the class of beneficiaries to include her stepmother and step-siblings and confirmed that she was happy with the proposed amendments. The decision was made by the court. However, Darcy’s views were taken into consideration.

References:

  • In the Matter of the C Settlement [2017] JRC035A
  • De Bernardo v De Bernardo (2010) 3 NZTR ¶20-011
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