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At the heart of many family feuds is a displeased beneficiary who objects to a decision made by the trustees' of a family trust. In some cases the beneficiary will be justified in his or her displeasure and it may be appropriate to challenge the decision in Court.

The common grounds for challenging trustees’ decisions are:

  1. In making a decision the trustees' failed to give proper consideration to relevant matters, or took into account irrelevant matters. In such situations, if the Court agrees, then the decision will be voidable at the Court’s discretion.
  2. The act was within the scope of the trustees’ powers but was exercised for an improper purpose. This is commonly referred to as ‘fraud on power.’ In this situation, there is no need for a beneficiary to demonstrate that the trustees' acted dishonestly (even though they may well have done). Where the power has been exercised improperly, the exercise of power will be invalid.
  3. The trustees' were conflicted when making the decision as they had an interest in the outcome. Here, a beneficiary must show that the conflict was not inherent in the circumstances of the trust when it was created, and that it was not expressly authorised by the terms of the trust. The trustees' must then demonstrate that the decision was one which any reasonable trustee might have made, and that the decision was not influenced by the conflict.
  4. The decision was the result of a mistake (of law or of fact) made by the trustees'. Here, the mistake must be of sufficient gravity for it to be set it aside by the Court.

In some cases, a beneficiary may be able to claim that steps taken to implement a decision were not authorised by the terms of the trust. Such a challenge would involve an examination of the trust documents to determine the scope of the trustees’ powers and analysis of whether the trustees’ acts were permitted by those powers. If an act by trustees' is not within their powers, it will be invalid.

A beneficiary who wishes to challenge trustees’ decisions may face difficulties in obtaining the necessary evidence. This is because beneficiaries are not entitled to all trust documents as of right.

In a recent New Zealand case, Erceg v Erceg, the scope of a beneficiary’s rights to information was in issue. The Court of Appeal recognised that trustees have discretion with regards to disclosure of information. This discretion must be exercised in accordance with trustees’ fiduciary duties, and be balanced against the interest beneficiaries have in the proper administration of a trust and ensuring that the settlor’s wishes are met.

Beneficiaries are likely to have a right to ‘core’ trust documents like the trust deed and general information on assets and liabilities. However, documents which contain commercially sensitive or personal information about others may be withheld or redacted. This position could change in the near future with significant changes proposed by the terms of the Trusts Bill.

We have considerable experience in acting for beneficiaries who challenge trustees’ decisions, and also for trustees' responding to such challenges.



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