Beneficiaries not always entitled to trust information

Rosie Clark

In March the Supreme Court released a decision concerning a beneficiary’s entitlement to access information about a trust that they are a beneficiary of. The case involved two trusts settled by the late businessman, Michael Erceg. Mr Erceg’s brother Ivan unsuccessfully claimed that the trustees of the two trusts were obliged to disclose trust documents to him.

Prior to Michael Erceg’s death in 2005, he transferred shares in his successful businesses to the two trusts. Following his death the trustees sold those shares and wound up the trusts. At the time the trusts were wound up, Ivan Erceg was bankrupt and did not receive any distributions from the trusts.

Ivan sought a declaration from the Supreme Court that he was a beneficiary of the trusts and an order requiring the trustees to provide him with copies of an extensive list of documents. The trustees sought an order striking out Ivan’s claim.

Beneficiaries are typically described in trust documents either by name or by class, for example, “my sons Henry and Max” or “my children”. While Ivan was not a named beneficiary of either trust, as Michael’s brother he was part of a class of beneficiaries under each trust. In each case he was a discretionary beneficiary which means that his entitlement to receive a distribution of trust assets was entirely at the discretion of the trustees. This is what the Supreme Court described as a “mere expectation” and not a “fixed or contingent proprietary interest”.

While the Supreme Court acknowledged that Ivan was a beneficiary, it was not satisfied that Ivan was entitled to receive the documents that he had requested.

Trustees have an obligation to administer a trust in accordance with the trust deed, and a duty to account to beneficiaries. However, trustees are not required to give reasons to discretionary beneficiaries for the manner in which they exercise their discretions. The Courts have a supervisory role in respect of the administration of trusts which the Supreme Court described as “a jurisdiction that must be exercised in accordance with principle, after careful assessment of the factors relevant to the disclosure sought by the particular beneficiary”.

The Supreme Court identified 10 factors that should be evaluated in relation to an application for disclosure of trust documents: the documents that are sought; the context for the request and the objective of the beneficiary in making the request; the nature of the interests held by the beneficiary seeking access; whether there are issues of personal or commercial confidentiality; whether there is any practical difficulty in providing the information; whether the documents sought disclose the trustee’s reasons for decisions made by the trustees; the likely impact on the trustee and the other beneficiaries if disclosure is made; the likely impact on the settlor and third parties if disclosure is made; whether disclosure can be made while still protecting confidentiality; whether safeguards can be imposed on the use of the trust documentation.

The trustees’ lawyer described Ivan as a divisive and litigious figure within the Erceg family. To support this claim the trustees’ lawyer provided the Supreme Court with a list of 50 earlier legal proceedings that Ivan had been involved in and an email to one of the trustees in which Ivan threatened the trustees and threatened to discuss family matters with the media.

The Supreme Court was persuaded that “the potential for harassment of beneficiaries to whom dispositions have been made is real in this case, and so disclosure of any information identifying them could be damaging to them… In light of the appellant’s past conduct, his application can be seen as potentially using the court process to assist him in the continuation of his reprehensible conduct.”

This decision, from New Zealand’s highest court, notably the ten factors listed above, offers guidance to trustees and their legal advisors about when and what information should be disclosed to beneficiaries.