Requirement For Trustees To Appoint Other Professionals For Further Advice

Stuart Parris
Internal referrals

Professional Trustees and Deputies predominantly act as part of a firm, most often a firm of Solicitors, who will also offer other services. For example, a firm of Solicitors will not only have a Trusts Team but will also have teams specialising in Disputes, Personal Injury, Property, etc.

Having other specialisms within the same firm greatly assists Trustees with their role as they are able to efficiently obtain advice on areas outside of their specialism, in turn offering clients a greater level of service. However, when formal advice is required, are Trustees able to instruct a colleague in another team?

Internal referrals

Whilst internal referrals at face value offer many advantages, most notably the ability to work more efficiently together, a potential conflict of interest arises. Obtaining advice from internal professionals ignores all other professionals who may be able to offer a client a better service, whether that be with the quality of advice or level of costs. Even in the event other professionals are considered, but not appointed, that conflict of interest remains in place. The recent case of Irwin Mitchell Trust Corporation v PW and The Public Guardian considered these circumstances in order to decide whether this would create a conflict.

Case background

In this case, Irwin Mitchell Trust Corporation, like many other Trust Corporations, instructed their internal Investment Team to manage a Trust’s investments. Steps were taken prior to their instruction to ensure they were best placed to manage the investment and the instruction was in the best interests of the Protected Party. Although the Court was critical of the steps taken to ensure the instruction was appropriate, the Court held the internal instruction inevitably caused a conflict of interest. Accordingly, Irwin Mitchel Trust Corporation acted in breach of the self-dealing rule.

The self-dealing rule makes a transaction voidable which means the instruction was not automatically reversed. Irwin Mitchell Trust Corporation invited the Court to retrospectively approve the instruction and the case will continue to decide whether the instruction can be ratified once further evidence is made available.

This case confirms that a Trustee’s internal instruction for further advice will be a conflict of interest; therefore, prior approval is necessary. The accepted grounds for approval are yet to be confirmed however the process of obtaining prior approval undoubtably creates a significant disadvantage for internal referrals and therefore unless there is any significant gain, a Trustee is unlikely to consider their appointment. Moving forward Trustees are advised to use external professionals where further advice is required.

Comment

Here at Nelsons we offer a breadth of expertise. We have a strong Court of Protection and Trusts Team who are able to act as professional Trustees. We also have a large Investment Management Team made up of several Independent Financial Advisors who are able to advise where your firm may otherwise be conflicted.

How can Nelsons helpInternal referrals

Stuart Parris is an Associate in our expert Dispute Resolution team, specialising in inheritance and Court of Protection disputes.

If you require any advice on the above subjects, please contact Stuart or another member of the team in Derby, Leicester, or Nottingham on 0800 024 1976 or via our online enquiry form.

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