This blog post highlights the importance of appointing an independent trustee as illustrated by a recent England & Wales High Court action. The case involved a discretionary trust where the settlor had appointed several family members as trustees. This later led to an acrimonious court battle. Whilst the court put to rest the legal dispute, no doubt the same cannot be said for the family feud which arose as a result of the family members having being appointed as co-trustees of the family trust.
The case involved a discretionary trust settled by a Mr John Wild. Mr Wild vested his business, worth £2.3 million, and country home, worth over £1 million, in the trust. He appointed his wife, son, daughter and accountant to act as his trustees.
When Mr Wild died in 2009, a dispute arose over the distribution of the trust’s assets and in particular over a distribution to his wife. Two of the trustees, Mr Wild’s wife and daughter, applied to the court to have the third trustee, Mr Wild’s son, removed as a trustee by reason of the fact he refused to consent to the distribution.
Mr Justice Arnold made no finding of bad faith against Mr Wild’s son. However, he ruled in favour of the wife and daughter and ordered that the son be removed as a trustee. He noted that the son had become prejudiced by his concern over his mother’s will. Mr Wild’s son was concerned that his mother intended on cutting him out of her will and should a distribution have been made from the trust to his mother, he would receive little or nothing of his parents’ considerable wealth.
As a result of the High Court ruling, a distribution from the trust to Mrs Wild was to be released immediately and legal costs of £40,000 were awarded against the son.
There are significant duties imposed on a trustee by law which are fiduciary in character and both statutory and non statutory. The office of trustee is therefore onerous and the trustee’s duty is to carry out the terms of the trust diligently and honestly. Suffice to say, the trustee’s role is extremely important and a settlor should chose his/her trustee(s) carefully when settling a trust.
Conflict Of Interest
The above case illustrates that appointing trustees that are also the beneficiaries is far from ideal. Whilst there are no specific provisions to prevent a beneficiary of a trust being appointed as a trustee, a conflict of interest is likely to arise between his or her duties as manager of the trust and his or her entitlement, if any, to the property under the trust. The fact that the trustees were also related in the above case increased the likelihood of a conflict arising and it was clear to the court that Mr Wild’s son allowed his personal interests to influence his decisions as a trustee.
Number Of Trustees
Mr Wild had also appointed his accountant as a fourth independent trustee. However, the practical effect of this appointment was little or none, on account of the existence and discretion of the other trustees. Again, whilst there are no special provisions stipulating the number of trustees that may be appointed in a trust document, a settlor should consider that the more trustees, the more complex and possibly costly it would be to manage the trust’s affairs.
Significance Of This Case
It seems clear from the foregoing that a prudent settlor will seek independent legal advice when contemplating settlement of a trust. It is always advisable that independent trustees be chosen to act so that the trust has the best possible chance of achieving its objectives.