Trustees’ discretions and disclosure of reasons

Discretionary trusts are a well-established feature of the will-drafting, and private client advisory scenes. The essence of a discretionary trust is that wide-ranging discretions are vested in the trustees, particularly in relation to who shall benefit from the trust fund and, inevitably, who shall not. Not surprisingly, potential beneficiaries who have not benefited from the exercise of the trustees discretions may wish to challenge the trustees and obtain information as to the way in which the trustees have reached their decision. Well-drawn trust deeds (often drawn up by advisers who will act as trustees) invariably contain provisions restricting beneficiaries’ rights to obtain information and challenge trustees’ decisions. It is, of course, well established by case law that if trustees properly decline to give reasons for their decisions, those decisions cannot be challenged. If, however, the trustees do give reasons, the sufficiency of these reasons can be challenged. Well-established English case law, such as Re Londonderry (1965) CH 918, has held that beneficiaries do not have the right to override the terms of a trust instrument permitting the trustees to retain confidentiality. However, more recently the Courts of other jurisdictions have seemed inclined to grant beneficiaries greater rights to information from the trustees. The recent case law has been reviewed by Briggs J in Breakspear v Ackland (2008) EWHC 220 (ch).