Beneficiaries Rights to Information 02 Feb 2018
Are you a beneficiary wondering what trust information you are entitled to, or a trustee concerned with what information you may be required to provide to a beneficiary? This article considers the current New Zealand legal position on the rights that beneficiaries have to trust information, and the changes about to take place as a result of the proposed Trusts Act, which is expected to be passed into law this year (2018).
Current Legal Position – What trust information is a beneficiary entitled to?
The Supreme Court in the case of Erceg v Erceg sets out the current legal position in New Zealand. In Erceg, which concerned Ivan Erceg’s request for extensive disclosure of trust documentation, the Supreme Court ruled that the following factors must be evaluated when an application for disclosure of trust documents is made:
- The documents that were sought.
- The context for the request and the objective of the beneficiary making the request.
- The nature of the interests held by the beneficiary seeking access.
- Whether there are issues of personal or commercial confidentiality.
- Whether there is any practical difficulty in providing the information.
- Whether the documents sought disclose the trustees’ reasons for decisions made by them.
- The likely impact on the trustees and the other beneficiaries if disclosure is made.
- The likely impact on the settlor and third parties if disclosure is made.
- Whether disclosure can be made while still protecting confidentiality.
- Whether safeguards can be imposed on the use of the trust documentation.
In Erceg, the Supreme Court concluded that:
- Ordinarily a primary discretionary beneficiary like Mr Erceg would have a good case for disclosure of at least the trust deed and financial statements.
- Confidentiality concerns about Mr Erceg outweighed the general expectation that basic trust information should be disclosed to a beneficiary.
- “Trustees may decline to disclose to a beneficiary documents that set out their reasons (or may redact documents to remove material showing those reasons)”
- The strongest case for disclosure on request would be one involving a request from a close beneficiary for disclosure of the trust deed and trust accounts as being the minimum needed to scrutinise the trustees’ actions to hold them accountable.
Ultimately, the ability to see trust information is based on the status and motives of the beneficiary applying to the Court. In this case the Court refused to grant Ivan Erceg’s request for trust information because his conduct toward the other beneficiaries was confrontational and “he was on a fishing expedition”.
Proposed changes to beneficiaries’ rights under the draft Trusts Act
If the draft Trusts Act is enacted in its current form it will advance beneficiaries’ rights to trust information as it includes a presumption that trustees must notify all beneficiaries of “basic trust information”, which includes:
- The fact that they are beneficiaries;
- The names and contact details of trustees;
- Details of each appointment, removal and retirement of a trustee as it occurs; and
- The right to request a copy of the trust deed and/or trust information i.e. regarding the Trust’s administration, its property and terms of the Trust.
This is the minimal information necessary for beneficiaries to ensure the trustees comply with their duties to the beneficiaries.
It is important to note that there will be a second presumption created by the proposed Trusts Act, which requires a trustee to provide trust information within twelve months to a beneficiary who requests it. However, as can be seen from the following, these two presumptions may be minimised or totally overshadowed.
What must a trustee consider when asked to disclose, or notifying beneficiaries of, basic trust information?
The trustees must take the following factors into account when considering whether or not to disclose such information:
- The nature and interests in the trust held by the beneficiary and the other beneficiaries of the trust, including the degree and extent of the beneficiary’s interest in the trust and the likelihood of the beneficiary receiving trust property in the future.
- Whether the information is subject to personal or commercial confidentiality.
- The expectations and intentions of the settlor at the time of the creation of the trust (if known) as to whether the beneficiaries as a whole and the beneficiary in particular would be given information.
- The age and circumstances of the beneficiary.
- The age and circumstances of the other beneficiaries of the trust.
- The effect on the beneficiary of giving the information.
- The effect on the trustees, other beneficiaries of the trust, and third parties of giving information.
- In the case of a family trust, the effect of giving the information on:
- The relationships within the family; and
- The relationship between the trustees and some or all of the beneficiaries to the detriment of the beneficiaries as a whole.
- In a trust that has a large number of beneficiaries, the practicality of giving information to all of them.
- The practicality of imposing restrictions and other safeguards on the use of the information.
- The practicality of giving some or all of the information to the beneficiary in edited form.
- If a beneficiary has requested information, the nature and context of the request.
- Any other factor that the trustee reasonably considers
What will be the differences between the Erceg approach and that of the proposed Trusts Act?
The proposed Trusts Act seeks to ensure that at least one beneficiary must receive basic trust information to ensure the trustees are kept accountable and are discharging their obligations to the beneficiaries properly. If the Trustees believe one or more of the above factors justify them denying all beneficiaries of such information, then they must apply to the High Court for directions. The Court must decide if the Trustees’ decision is reasonable and if so, how they can otherwise be held accountable for their actions if none of the beneficiaries are advised of their status or informed of basic trust information.
The obvious difficulty for trustees will be in deciding which beneficiary to choose, or whether it would be less disruptive to inform all of them at once.
In summary, under the proposed Trusts Act, as a beneficiary, you can expect to see the trust deed, names of the current trustees and some financial information unless the trustees consider otherwise under the above list of factors.
When the new Act is passed, be aware that the obligations of trustees, and in particular the rights of beneficiaries, are set to dramatically change, as may the dynamics of some family relationships.
This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Please contact Pat Rotherham at Parry Field Lawyers (348-8480) firstname.lastname@example.org