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A Pragmatic Approach to Dealing with Information Requests by Trust Beneficiaries

There is often a legal answer and a practical answer to whether a trustee should disclose information and documentation requested by a beneficiary. The practical answer favours disclosure – it is easier and less costly to disclose than to fight a request. Disclosure also increases transparency. Beneficiaries who are kept in the dark often assume the worst and that assumption can cause a lengthy dispute, costly litigation, a depletion of trust assets, and family disharmony.

The legal answer usually depends on the nature of the information or documentation requested, the nature of the beneficiary’s interest (e.g., discretionary, contingent, income, capital), and whether litigation has been commenced. Beneficiaries of trusts are generally entitled to review the deed of trust or will and trust accounts. Without these documents, beneficiaries are unable to ensure that the trust is being administered in accordance with its terms. In contrast, beneficiaries are not always entitled to review documents relating to the administration of the trust, such as trustee meeting minutes and resolutions, correspondence between the trustees and third parties (e.g., lawyers, investment advisors etc.), letters of wishes prepared by the settlor or testator, and documents relating to discretionary decisions. 

Beneficiaries often request the documents relating to the administration of the trust as it those documents that tend to reveal whether or not a beneficiary’s concerns are founded. For example, a beneficiary may request copies of trustee minutes where she believes the trustees improperly decided to distribute a smaller amount of capital to her than to the other beneficiaries. Where there is no alleged wrongdoing, trustees are generally not required to disclose these documents, especially where the beneficiary’s interest in the trust is remote (i.e., contingent or discretionary) or where the request is unreasonable (e.g., broad requests without a clear basis). Without this zone of privacy, it would be extremely difficult for trustees to properly exercise the role entrusted to them. The courts also recognize that disclosure can often result in greater harm than good, especially where the requested document is a letter of wishes that contains sensitive information about a family member.

The case of Schmidt v. Rosewood Trust Ltd. illustrates how courts tend to deal with requests for documents relating to the administration of a trust. That case was heard by the Judicial Committee of the Privy Council, the highest court of certain commonwealth countries (excluding Canada), and has been accepted by Canadian courts. In that case, a discretionary beneficiary requested disclosure of accounts and information from the trustees of a trust settled by the beneficiary’s father.

In arriving at the above conclusion, the court set out a few guiding principles. First, the right to seek disclosure does not depend solely on the beneficiary’s interest in the trust (e.g., fixed versus discretionary). Instead, even beneficiaries with remote interests may be entitled to the court’s protection in certain circumstances. Second, in determining whether disclosure should be made, courts must weigh all relevant factors, including: the classes of documents being requested, whether sensitive information in the documents can be redacted, whether safeguards can be imposed to limit the use of the documents, and whether any claims have been or could be made by the beneficiaries. In weighing these factors, the court restored the lower court’s decision which granted disclosure subject to certain conditions.

Trustees should be pragmatic when dealing with requests for documents that they may otherwise not be required to disclose. If the release of the documents is unlikely to cause harm to any of the beneficiaries, then it is usually advisable to disclose the documents. If the release could be harmful to a particular beneficiary, the trustees may prefer the protection of a court order or the beneficiary’s permission before disclosing the documents.

Trustees should also be aware that after the commencement of litigation (more specifically, litigation commenced for reasons other than just obtaining trust documents), it is more likely that documents relating to the administration of the trust will have to be disclosed in accordance with the rules that govern litigation discovery. If it appears reasonably likely that a beneficiary may commence litigation, disclosure should be considered if it may prevent litigation.

Beneficiaries, on the other hand, are often hesitant to request documents and information due to a fear that they might then be treated less favourably by the trustees. While it is generally improper for trustees to take such requests into account when exercising their discretionary powers, this is nonetheless a realistic concern in some cases. As such, beneficiaries should be mindful as to how they frame their requests for disclosure–making unfounded allegations against the trustees is rarely helpful.

Requests for disclosure should rarely be denied simply because the trustees may not be obligated to comply. Instead, trustees should take a pragmatic approach to disclosure requests. Otherwise, litigation that could have been prevented may result, which is rarely in the best interests of the beneficiaries or trustees.

Join us for our next blog post when we discuss some of the considerations for appointing guardians of minor children in one’s will.

The comments offered in this article are meant to be general in nature, are limited to the law of Ontario, Canada, and are not intended to provide legal or tax advice on any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your personal circumstances.