Trust issues: trustee duties – and disputes
An ongoing court battle between William Seymour, Earl of Yarmouth, and his parents, the Marquess and Marchioness of Hertford, over the governance of the family trusts has highlighted the challenges often faced by trustees seeking to balance the interests of different beneficiaries.
The dispute
The Seymour family trusts are run by two trust corporations, the Ragley Trust Company Ltd and Seymour Trust Company Ltd. The Earl of Yarmouth has issued a High Court claim for removal of the current trustees, alleging that there has been a general trend of misdirection in the trustees’ management of the estate, and that, as a result, the relationship of trust and confidence between the Earl and the trustees has irretrievably broken down. Issues in the claim include allegations that the trustees have refused to release funds to cover the Earl’s children’s school fees, as well as a claim that the family were evicted from their cottage on the Ragley Hall estate with only a few days’ notice.
Whilst trusts of similar size and complexity to the Seymour family trusts are perhaps few and far between, disputes over a trustee’s management can arise in many contexts. Applications to the Court for removal of a trustee can occur in circumstances where a beneficiary feels the trustee has acted in breach of their duties.
What are a trustees’ duties?
Because trustees hold property for the benefit of other people rather than themselves, they are subject to a series of duties known as fiduciary duties. These require trustees to:
- Exercise reasonable skill and care, and act prudently when carrying out the management of the trust
- Act in the best interests of the beneficiaries, rather than themselves, when making decisions about the management of trust assets
- Behave openly and honestly
- Refrain from placing themselves in a position where their own interests, or duties to a third party, conflict with their duties to, or the interests of, the beneficiaries
- Ensure they do not make a profit from their position
- Act within the powers bestowed on them by statute and by the trust deed itself
- Act impartially between beneficiaries, and ensure the interests of different beneficiaries are balanced.
Disputes can frequently arise where a beneficiary feels that their interests have been overlooked in favour of another beneficiary, or that a trustee’s mismanagement of assets has caused the trust financial loss. In such circumstances, it is perhaps inevitable that beneficiaries will sometimes fail to understand why certain decisions have been made. However, a beneficiary will have to have sound factual evidence – such as a calculable loss to the trust – before an application to the court for removal of a trustee can be justified. A simple grievance or disappointment will not usually be sufficient to warrant the court’s interference.
How can disputes be avoided or addressed?
As ever, the first step in navigating a potential dispute is always to talk about the issues with the relevant parties. Whilst trustees with discretionary powers are not usually obliged to disclose the reasons for their decisions to the beneficiaries, misunderstandings can often be resolved through simple discussion, subject to the trustees’ duties of disclosure.
Where this route has been exhausted, or where there are serious concerns about mismanagement, then a court application can sometimes be avoided if the trustees volunteer to step down. If they do not agree to this, or a resignation is not justifiable, then the court can be asked to exercise its supervisory jurisdiction and intervene. If the court agrees that there has been mismanagement, then the trustees can be removed and replaced under the court’s inherent jurisdiction. If it does not, then this can provide reassurance to concerned beneficiaries that the trustees are in fact acting in their best interests.
Seeking expert advice at an early stage of a potential dispute is often the best way to prevent escalation to court. The Litigation & Dispute Resolution team at Hunters have a wealth of experience in dealing with disputes between trustees and beneficiaries, and can provide welcome assistance when navigating these complex issues.
