Discretionary Trusts – What are your options for challenging trustees’ decisions on behalf of a disappointed beneficiary?
Discretionary Trusts can be difficult. Not least because they are generally exactly what they say on the tin, i.e. discretionary. This means the trustees appointed under the trust are able to exercise their powers within the discretion given to them under the trust to manage or make decisions relating to the trust. Trustees do face some limitations in that the exercise of the above has to be within reason and in the context of the wider trust and their duties as a trustee, however, sometimes trustees do not exercise their powers properly or their discretion leads to disappointment on the part of one or more beneficiaries of a trust.
One of the biggest difficulties discretionary beneficiaries may face if they are disappointed by a trustee’s decision is that there may be a lack of information provided as to why the trustees have made a certain decision. Trustees are not obliged to provide the reasons for why they have made a certain decision and getting this information from a trustee can be difficult. It is possible to make an application to the court requesting the trustees to provide information regarding a decision they have made, however, this will not compel the trustees to provide the reasoning behind their decision. In this regard, the first port of call for a disappointed beneficiary would be to ask the trustees to provide a letter of wishes (if there is one) as this will usually be a guide for how the settlor (creator of the trust) wished the trustees to exercise their discretion. It does however need to be said that the trustees do not legally have to comply with a letter of wishes, but that they should be taken into account.
Despite these difficulties, there are some remedies that may be available to disappointed beneficiaries when attempting to try and challenge trustees. However disappointed beneficiaries do need to proceed with caution and should consult with a legal professional who can assist with advising them if they meet the necessary criteria for any of the options below.
Proceedings may be appropriate to be started against trustees for breach of trust, leading to information being provided as part of disclosure. It may also be appropriate prior to proceedings being started to make an application for pre-action disclosure from the trustees with a view to resolving the issues without recourse to issuing proceedings. This is of course a strategy not without risk in the sense that it may be demonstrated that the trustees have actually behaved properly, leading to the proceedings being discontinued. In this situation, any prospective client will need to consider the cost/benefit analysis and understand they may be at risk as to costs.
Some further options forming a basis on which to start proceedings may be:
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Improper exercise of power
If a beneficiary is unhappy with the way the trustees have exercised their powers, then they could look at whether the exercise of the power was proper and in the terms of the power as given to the trustees. For example, if a trust contained a power of advancement for a specific beneficiary and the trustees used their power to use this for the benefit of another or unrelated beneficiary then this would likely be an improper exercise of power. This could also be made out in a situation where a trustee’s decision leads to significant tax implications, as this may not be of benefit to the beneficiary.
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