When The “Trust” Has Been Breached

Testators may choose to leave their estates in Trust for many reasons, for example, a child has a disability or is not able to manage finances, a wayward child whom they would not wish to receive their inheritance in a lump sum or to retain a level of control when they have passed away to keep their wealth within the family.

Trustees have a duty of care to beneficiaries of the Trust. Beneficiaries are reliant upon their judgment and capability to make the right decisions on their behalf. That is why the testator must choose their trustees wisely. This is of even greater importance in a Discretionary Trust where the trustees have absolute discretion in the management of the Trust fund and make decisions regarding the distributions to the named beneficiaries, with the power to benefit one beneficiary over any others.

In the case of a Discretionary Trust, the testator would usually leave a letter of wishes as to how they would like the Trust fund to be used and to whose benefit, but the trustees are not legally bound to adhere to the letter of wishes.

The basic right of a beneficiary of a Trust is to have the trustees carry out their distributive and managerial roles properly. Failure to do so, by act or omission is a breach.

A trustee can be challenged if there are concerns that they are not being honest, providing beneficiaries with information that they are entitled to, or failing to disclose issues that may affect the Trust fund value.

When has a Trust been breached?

Breach of Trust occurs when a trustee does anything which they should not do; or fails to do something which they should do. For example, behaving in a negligent way that is detrimental to the beneficiaries, hiding or refusing to provide reasonable information, dealing with requests and the Trust administration in a timely and efficient manner, or abuse of Trust funds such as benefitting from or treating them as if it they are their own.

The actions that can be brought against trustees for breach are to remove or replace them, obtain documents or information that the trustees have been withholding, obtain copies of the Trust accounts, or make the trustee pay back any financial loss to the Trust.

In extreme cases, if a trustee has committed theft or fraud, there is a possibility of criminal charges being brought against them.

Often in contentious probate claims where a Trust is involved, not only can there be a challenge against the Will itself but also about the appointment and conduct of the trustees.

At Nelsons, we have experience in matters where errant trustees have either unduly influenced the testator to appoint them as trustees and/or abused their powers and responsibilities to the detriment of the beneficiaries.