The Importance of Good Administration.
The importance of keeping proper records for trusts including an accurate and up to date minute book was recently highlighted in a decision of Royal Court of Guernsey in the matter of the [AAA] Children’s Trust.
Without going into the detail of the case, the key issue was the validity of a decision made by the trustees that was later contested by beneficiaries of the Trust.
Generally speaking, there is no obligation on trustees to do what beneficiaries want them to do. Instead, trustees have an obligation to act in accordance with the terms of the trust and in the best interests of those beneficiaries, Sometimes that does mean ignoring beneficiaries’ wishes. A very simple and obvious example would be a request from a beneficiary with a gambling addiction for a distribution – the beneficiary wants something that is not actually in his best interests. In this case the trustees should probably not make the distribution. Remember also that in most trust instruments, many of the trustee’s powers are discretionary. That means that the trustees should do what they think is best and cannot be forced to act.
In the Guernsey case, the trustees had made a decision to sell assets which comprised a significant part of the trust fund. Despite the fact that they had the power to do this, as explained above, the court overturned the transaction.
Why?
A major factor in the Court’s decision was that was that the trustee’s decision-making process was not properly documented. Indeed the Court was not even able to see evidence that the trustees has made a definite decision to sell the assets. The trustees did not have detailed minutes of the meeting where the decision had been made. They did submit some minutes but in these minutes the asset sale was not a specific agenda item. The minutes also failed to provide any evidence of the trustee’s deliberations.
There was evidence of some telephone conversions and emails on the topic of the sale, but the Court found that it was impossible to pinpoint a meeting in which the trustees had actually made the decision.
That means that, even though it seems from the facts that the trustees made a decision, the fact that they didn’t document it means that it was overturned.
Why is a decision of a court in Guernsey relevant to Czech Trusts?
At first glance it doesn’t seem to be directly relevant because Czech Trusts are established under and governed by the Czech Civil code not common law. Having said that, there are many areas on which the Civil Code is silent, including, to a large extent, the basis on which beneficiaries can challenge trustees’ decision-making.
If we look at Quebec, the jurisdiction that inspired the Czech Code, we see that where their Civil Code is silent on a point, the Courts can, and do, look to internationally accepted principles of trust law. This means that even though both Quebec and Czech are civil law jurisdictions, precedents set by common law courts are applied in Canada, and a likely to be applied here too.
That is the reason why a good understanding of common law principles is important when setting up Czech Trusts. We don’t know with certainty that they will be applied in Czech, but it would be extremely foolish to assume that they won’t.
What does this mean for Trustees?
- Every trust must have a minute book and that minute book should be compete and up to date
- When trustees make decisions, they must always document those decisions and unless it’s blatantly obvious, then they should also set out in writing the factors that they considered and their reasoning
- If the decision is very significant or potentially controversial, the trustees should consider seeking independent professional advice and, if they decide not to, set out in the minutes the reasons why such advice was not sought
- If the decision is very significant or potentially controversial the Trustees should convene a separate meeting specifically to consider that decision
- Detailed minutes should be taken at the meeting, with specific focus on the decision making process, the trustees’ deliberations and the decision taken at the meeting;
We are happy to assist trustees with administration for trusts, even if those trusts were not originally established by us. For more information, please contact us
