Beneficiaries’ rights to information in a trust

BENEFICIARIES are entitled to a certain amount of information about the trust of which they are a beneficiary and trustees have a duty to disclose that information. But trustees can sometimes be reluctant to disclose certain information, or it may be that beneficiaries are unclear about what they are entitled to see.   

The trustee, or trustees of a trust are the guardians or custodians of the assets held in that trust and it is their responsibility to ensure that the trust’s finances and records are looked after and kept up to date. Trustees act according to the instructions of the founder of the trust as set out in the trust deed, which is the founding document for any trust. Their functions generally include; recording expenses and income, distributing funds to beneficiaries, filing tax returns on any income the trust generates and keeping record of other transactions that occur. “What this means is that a trustee is acting as a fiduciary – they are looking after the assets in the best interest of the beneficiaries of the trust in good faith,” explains Katherine Timoney, associate at boutique, commercial law firm Gillan and Veldhuizen Inc. 

Because of this fiduciary relationship, a trustee is bound to report on the trust’s affairs to a beneficiary so that the beneficiary can establish, for example, what if anything, they are entitled to have distributed. One does in fact have a right to see trust documents which set out the terms of the trust, the identity of the trustees and the assets within the trust, along with the trust deed. 

In a comparatively recent case which decided on this obligation owed by the trustee, Doyle v Board of Executors [1999] 1 All SA 309 (C), in which a capital beneficiary (who would be distributed the trust’s capital when it dissolved and distributed) requested a full audit from the trustee on what had been done with the trust’s assets during the lifetime of the trust. He was refused on the grounds that he only became a beneficiary after his mother’s death. 

The Court found that: 

“On her death he became entitled to receive the trust capital. However it had been invested or reinvested over the years, it was to be passed on to him. Consequently, the defendant was bound, on handing it over, to satisfy him with proper explanations, that it was what it purported to be; the full and true trust capital, no more and no less. This it could not do simply by furnishing him with unvouched and untested opening balances on an account. It is therefore bound, in discharge of its duty of good faith, to demonstrate to him that that which he has received is the correct product of the initial capital, properly administered.”

“Beneficiaries are therefore entitled to an accounting from trustees relating to the benefit that they are due to receive,” says Timoney. In this case the beneficiary was to receive the capital of the trust and so he was owed an accounting of the trust’s capital for the duration of the trustee’s tenure as trustee of that trust – to enable them to confirm for themselves that the amounts are correct and to hold trustees to account as fiduciaries for their management of the trust’s assets on their behalf.

Disputes often arise between trustees and beneficiaries and sometimes even between fellow-trustees.  “In these circumstances and to avoid potential costly and lengthy court proceedings to resolve issues, donors and those who draft trusts should consider the insertion of an alternative dispute resolution clause in trust deeds catering for mediation and arbitration,” advises PJ Veldhuizen, MD and dispute resolution specialist at the firm.

• For more information visit: www.gvinc.law.za