A warning to accountants, financial planners and lawyers
Trustee confidentiality is a major issue in all our practices. This is a warning to all accountants, financial planners and lawyers that take on the onerous responsibilities of holding a Trustee position for clients we have Felicity Blades v Richard Isaac & Christopher Alexander. It is a timely reminder to trustees concerning the confidentiality of legal advice and the seeking of information by pesky beneficiaries.
Mrs Lee died. The Trustees of the trusts in her Will were two lawyers.
The daughter, a beneficiary, asked the Trustees for information. The Trustees said no because they thought the information would harm the daughter’s relationship with other family members. The sister said, “we are all adults and we do not need a trustee to manage our relationship for us”. She questioned Trustee confidentiality.
The daughter was unhappy with the two lawyers as Trustees from the beginning of their involvement in administering her mother’s estate. She made several requests for a detailed breakdown of her mother’s estate. The Trustee lawyers refused. This was on the basis that the estate accounts were confidential to them as executors and trustees and were not for distribution to the beneficiaries. The daughter even promised not to challenge the lawyer’s charges. All to no avail. The two lawyer trustees refused.
The daughter asked again for information. The lawyers took advice from a lawyer in another practice for Trustee confidentiality. Armed with that advice they said ‘no’ to the daughter again.
The daughter started proceedings in the UK courts. The Trustee lawyers got advice from yet another law firm. On this different advice, they gave the daughter the information she wanted. Trustee confidentiality was obviously different depending on what lawyer you speak to.
The Court now only needed to decide who pays the legal costs incurred by the Trustee lawyers.
I don’t need Trustees and Testamentary Trust Wills
Firstly, the Court said it didn’t care whether the daughter thought she needed a Trustee. The Court held:
even on the basis that the sisters do not need a trust, the estate assets belonged to the Testatrix to deal with, and …. she decided … if she would impose a trust on her assets on her death. Whether the Testatrix was wise or not to do this is not a matter for the Claimant, nor indeed for the Court. In the absence of a Saunders v Vautier application by all the Beneficiaries, the Claimant by herself has no business or right of imposing her own will on the trust. She is entitled to the rights conferred on her by the trust, neither more nor less.
Clearly, the Trustees are bound more from the trust terms than a beneficiary. The mother had the intention and capacity to create the trusts in her Will. Shy of the daughter challenging the Will, the trusts stand whether the daughter liked it or not.
Who pays for the Trustee Lawyers’ secrecy?
The Court then decided who pays the legal costs of the action – the Trust Fund or the lawyers personally. Did the Trustees act reasonably in initially refusing disclosure to the daughter? Had Trustee confidentiality been breached. The answer depends on whether the legal advice the Trustees got from the external lawyer was:
- disclosable to the daughter as merely part of the trust document; or
- if it was protected by legal privilege as argued by the Trustee lawyers – and therefore private.
If the legal advice is a trust document, then the Trustees would normally be required to disclose the information to the daughter. However, if the advice was privileged the Trustee is not required to disclose the information.
What about ‘privileged information’?
Advice obtained from lawyers (and where the lawyer briefs the accountant and financial planner) in contemplation of going to court is usually privileged. It can therefore, be kept secret. The Court considered two issues:
- personal advice sought and paid for by the trustees, perhaps if they are at risk of being sued – the cost of this advice is personally paid for by the Trustees; and
- advice obtained by the Trustees for the benefit of the trust – because the advice is for the benefit of the trust then the costs are borne by the trust fund
The Court made it clear that as the Trustee lawyers took legal advice at the expense of the trust fund and then such advice is a trust document. It is therefore not privileged. It must be shown to the daughter or any beneficiary. The judge said:
The opinion had been obtained by the defendants, as trustees, for the benefit of the trust rather than for their benefit personally, and therefore it was proper for them to pay for it from trust funds. But the corollary of this was that it was a trust document, and therefore in the same category as other trust documents, that is, available to the beneficiaries if the court so considered. In relation to such documents, there can be no legal professional privilege as between trustee and beneficiary. Arguments about privilege … were therefore simply irrelevant.
Be careful what you seek advice on
If a Trustee seeks legal advice – that advice is seen by the beneficiaries. Sure, the Trustee retains privilege for legal advice against third party attacks – but not beneficiaries.
If you are not happy with that then a Trustee should pay for the legal advice out of his own pocket. It is then more likely to stay protected, secret and privileged.
Practice points for accountants, lawyers and financial planners when acting as trustee
- Even where disclosing trust information to beneficiaries may upset already difficult relations between the beneficiaries, trustees have a duty to account to beneficiaries. This includes providing appropriate information. Best to disclose the requested trust information.
- If trustees are in any doubt about their duty to disclose trust information they should firstly obtain an opinion from specialist Trust lawyers. Speak to us.
- Double check that your costs are fair, especially when the matter will go to court, as that issue, in our experience, always comes up for Trustee confidentiality.
- If the trustees’ breach causes loss to the trust they can’t obtain an indemnity from the trust fund for the beneficiary’s costs. Stick a Deed of Indemnity in the face of a beneficiary? Threatening to not hand over any assets until it is signed? This sounds like blackmail.
Case Citation: Blades v Isaac  EWHC 601 (England, High Court) regarding Trustee confidentiality.
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Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
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