By David Knibbs and Caitlin Watson -
Snapshot
- Disputes between disgruntled beneficiaries and trustees often arise over access to documents and information. Solicitors acting as trustees should be mindful of their fiduciary duty to beneficiaries and their specific duties in administering a trust.
- A trustee has a specific duty to account to beneficiaries and they must allow inspection of the accounts of the trust, upon request.
- There are practical ways in which solicitors can avoid conflict with beneficiaries whilst acting as a trustee. These can assist to avoid the unnecessary expense and delay that may result if conflict escalates to legal action.
When a beneficiary is unhappy with the way that a trust is being managed, it is not unusual for a claim to be made against the trustee. Solicitors, whether they are acting as trustees or advising trustees, need to understand a trustee’s obligations and consider whether steps can be taken to minimise the risk of a claim by a beneficiary.
Duty to account
In exercising their powers, trustees have a fundamental fiduciary obligation to act in the best interests of the beneficiaries. Trustees owe a duty to account to the beneficiaries and must maintain accounts and records (Parker v Higgins [2012] NSWSC 1516 at [57]-[58]). A trustee is also obligated to allow beneficiaries access to the accounts of the trust, when requested (Avanes v Marshall and Others [2007] NSWSC 191 (‘Avanes‘)). Trustees should provide prompt responses to reasonable inquiries and requests for information by beneficiaries. However, the trustee is not required to respond to ‘voluminous or lengthy queries’ (Gray v Guardian Trust Australia Ltd [2003] NSWSC 704 at [39]). The definition of ‘trust documents’ and the scope of beneficiaries’ rights to access trust documents remains unsettled in Australia.
What constitutes a trust document and may it be accessed by beneficiaries?
A trust document is not defined in the legislation and is circularly defined in many of the authorities. Trust documents include:
- the trust deed;
- accounts of the trust;
- documents concerned with the financial management of the trust;
- information on the amount of the trust property; and
- information on trust investments.
There are two competing lines of authority which address the principles applicable to the right of access to trust documents by beneficiaries.
The first line of authority, which involves the traditional, broad ‘proprietary’ approach, follows the case of Re Londonderry’s Settlement [1965] Ch D 918 which was relied on in the decision of Deutsch v Trumble [2016] VSC 263. The decision establishes that beneficiaries have an equitable proprietary interest in trust property. Documents relating to the trust form part of the trust property and can be inspected by beneficiaries (O’Rourke v Darbishire [1920] AC 581, 626-7).
