Beneficiaries’ rights to trust information have been challenged in the recent Court of Appeal decision in Erceg v Erceg. Prior to the Court of Appeal decision in Erceg v Erceg it was settled law in New Zealand that beneficiaries had a right to trust information.
However, this is no longer the case. The new position is that whether beneficiaries are entitled to information is determined by the trustees. The decision whether or not the trustees will make disclosure is not by reference to beneficiary rights, but rather requires the exercise by the trustees of their discretion.
The approach trustees should adopt when considering a request for disclosure is what information should be provided to beneficiaries to:
- ensure the sound administration of the trust?
- discharge the powers and discretions in respect of the fiduciary obligations the trustee owes the beneficiary, in particular the trustee’s duty to account?
- meet the trustee’s obligation to fulfil the settlor’s wishes? This refers to the principle that the exercise by a trustee of the trustee’s dispositive discretionary powers is “an essentially confidential process”.
- The considerations for trustees will always be circumstances-dependent. However, trustees should consider the following when deciding whether or not to provide information to a beneficiary:
- Whether there are issues of personal or commercial confidentiality
- The nature of the interests held by the beneficiary or beneficiaries seeking disclosure
- The competing interests of — and therefore the impact on — the beneficiary or beneficiaries seeking disclosure, the trustee(s) themselves, other beneficiaries and any affected third parties
- Whether some or all of the documents can be withheld in full, or disclosed only in a redacted form
- Whether safeguards should be imposed on the use of the disclosed trust documentation (for example, undertakings or professional inspection) to avoid illegitimate use
- Whether (in the case of a family trust) disclosure would be likely to embitter family feelings and the relationship between the trustee and applicant beneficiary to the detriment of the beneficiaries as a whole
- The nature and context of the application for disclosure.
The addition of the last point on the list may provide some solace for beneficiaries given that (in the writer’s experience) the practical reality is that many information disclosure request refusals are not based on trustees making a considered exercise of discretion, but more a knee-jerk reaction to ensure the trustees avoid scrutiny.