Disclosing the crown jewels - the latest from the Courts on Trustee disclosure obligations

16 October 2019

​​​​Family trusts are a common vehicle for the ownership of a family's wealth. Parents establish the trust and, as Trustees, decide on trust investments and the financial benefits periodically passed out to themselves and other family members. One aspect that is coming under increased scrutiny is family members' right to demand disclosure of trust financial affairs.

If the law did require this, many parents might rightly be aghast at the prospect of details of family wealth becoming the subject of inappropriate exchanges. Have matters reached that stage?

The recent Court of Appeal decision in Addleman v Lambie Trustee Limited [2019] NZCA 480 is the latest word from the Courts on this important topic.

Addleman v Lambie Trustee Limited

The case involved a family trust established by a now deceased father. His daughters, essentially the beneficiaries, are unfortunately estranged.

One daughter effectively operated the trust and did not reveal information. Unhappy with that, the other daughter sought a Court order for information on administration of the trust. The information requested centred on the trust's financial statements and legal opinions paid for out of trust funds (legal professional privilege is applicable only as against third parties and not as between the Trustee and beneficiaries).

The starting point for the Court of Appeal was that Trustees are accountable to beneficiaries, even discretionary beneficiaries, for their administration of the trust. Necessarily that involves some disclosure of financial information so that a beneficiary can gauge whether the trust has operated true to its terms.

Importantly the Court rejected the “catch-22" proposition that a beneficiary must be able to demonstrate some misconduct before disclosure can be required.

Perhaps just as importantly, the Court was wary of the Trustee's claim for secrecy. Confidentiality must yield to Trustee accountability and, in any event, redactions could address what might be truly sensitive.

The Court was also unsympathetic to a suggestion that disclosure could be resisted on the ground that one party could say it was “my" trust because of “my" financial contributions to it. The Court's response was that the Trust Deed created no hierarchy of beneficiaries, at least amongst beneficiaries who could be regarded as “close" beneficiaries of the trust.

Close beneficiaries of a family trust would normally be the immediate family – the parents and their children.

The Court thought that, generally speaking, a close beneficiary has the right to be provided with information on the trust's financial affairs.

The Court of Appeal went on to order disclosure. Trustee accountability was paramount and a number of discrepancies in the Trustee's evidence seemed to justify beneficiary scrutiny.

The Court's decision illustrates that family members, as beneficiaries of the family trust, can require the provision to them of trust information such as the trust's financial statements.

Trusts Act 2019

The legal position will be slightly modified when the Trusts Act 2019 comes into force. That Act sets out guidelines to help Trustees decide what trust information should be shared with trust beneficiaries.

The guidelines will apply as from 30 January 2021, when the Trusts Act becomes fully effective.

For disclosure purposes, the Trusts Act will divide trust records into “basic trust information" and “other" trust information.

The former includes an indication that a person is a beneficiary of the trust and the right to request other trust information. The latter includes the trust's financial statements (but not a record of reasons for Trustee decisions).

The rules go on to create two presumptions:

  • Trustees are to provide basic trust information - this presumption is supported by the requirement that Trustees are to consider at reasonable intervals whether basic trust information should be made available to beneficiaries.
  • Trustees will comply with a beneficiary's request for information, once it has been made.

Helpfully guidance is given on the factors Trustees might consider in evaluating whether each presumption is rebutted. Several factors are listed with their significant themes including the importance of confidentiality and the potential for sowing family discord if disclosure is made.

The above is a very brief outline of how far the Trusts Act takes disclosure of trust information to beneficiaries. Applying the statutory rules in any one case will depend upon the decision Trustees reach in light of the prevailing circumstances.

A final comment is to answer the question posed at the outset. There is reason to think that anxieties can be allayed about concerns that details on family financial wealth will become a new branch of inappropriate exchanges. The factors concerning whether the statutory presumptions in favour of disclosure are rebutted include a beneficiary's age and circumstances.

If you would like to discuss any of the matters raised in this article please get in touch with the contacts listed, or your usual Bell Gully advisor.​

Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.