Do you have trust issues? A beneficiary’s right to information
‘Knowledge is power’, a 16th century saying attributed to Sir Francis Bacon, still holds true for any beneficiary looking to access trust information.
Having information on the affairs of a trust, or the trustee’s administration and management of a trust, invariably increases the risk of the trustee’s conduct being scrutinised by beneficiaries. Such information may serve as vital evidence in support of a claim against the trustee for breach of their duties.
In part two of our trust series, we will explore what right a beneficiary has to access trust information, and the Court’s approach in recent years.
Does a beneficiary have an automatic right to trust information?
Yes and no. Recent cases, including Chan v Valmorbida Custodians Pty Ltd and Smorgon v ES Group Operations have confirmed:
- the ‘proprietary approach’ is the correct approach in Australia (which allows beneficiaries with a proprietary interest in a trust, such as unit holders in a unit trust, to access information as a right);
- however for discretionary trusts (where no beneficiary has a proprietary interest), the Court has a supervisory jurisdiction regarding the administration of a trust, which it can use to determine what information should be provided to a beneficiary.
What is the Court’s approach to accessing trust information?
Broadly speaking, the Court has more recently been willing to require a greater level of disclosure from trustees, where there is a close relationship between the beneficiary and the trust.[1] Importantly, a ‘close’ beneficiary has been held as someone who has received, or is a strong candidate to receive, distributions from a trust, or is someone named as a primary or specified beneficiary of a trust.[2]
In the context of a discretionary trust, if there is a presumption in favour of disclosure (which is not automatic) it only applies to close beneficiaries and is confined to basic trust documents such as trust deeds and variations, financial statements and possibly minutes (and only in appropriate circumstances).
The information being requested must also be distinguished from trust documents which are prepared by the trustee for its own purposes. Hartigan Nominees,[3] which has been applied and followed extensively in Australian Courts, deems documents which disclose deliberations about how the trustee should exercise its discretionary powers, as not being trust documents. Such an exclusion may also extend to certain trustee correspondence.
Key takeaways for trustees
If a trustee receives a request for information or trust documents from a beneficiary, as a minimum the trustee should:
- obtain details of the specific information being requested and the purpose for the request;
- refer to the terms of the trust deed;
- determine whether the beneficiary has a close or remote relationship with the trust (including whether the beneficiary has received or will receive distributions from the trust); and
- adequately document any decision to grant or reject the request.
Given the pitfalls in dealing with a beneficiary’s request for trust information, it may be wise to obtain independent professional advice before a trustee makes the decision. What starts out as a simple request for information may quickly escalate to a beneficiary challenging the trustee’s administration and management of the trust, and potentially lead to the removal of a trustee if it is later found the trustee has not acted appropriately.
[1] Chan v Valmorbida Custodians Pty Ltd [2020] VSC 590; Smorgon v ES Group Operations [2021] VSC 608; Jordan v Goldspring [2021] NSWSC 7
[2] Smorgon v ES Group Operations [2021] VSC 608
[3] Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405
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