Trustees To Provide Full Disclosure If To Be ‘Exonerated’ From Any Liability As Executors

Being a trustee or executor of an estate can be an onerous task as you will often be held personally liable for any mistakes made. If a beneficiary feels a trustee or executor has made a bad decision within their role they are able to bring a claim in order to recover any financial loss. If it is found such financial loss is a result of the trustee’s actions, which are held to be unreasonable, the trustee(s) can be held personally liable for that loss.

Any trustee acting should, therefore, ensure any decision they make is reasonable, within their powers, and ideally approved by the beneficiaries. To add to the already onerous task, beneficiaries are able to bring a claim against the trustee of an estate up to 12 years after that beneficiary was due to receive a share. This means any presumed bad decision or mistake made by a trustee will hang over them for 12 years.

There are a number of ways a trustee can remove this liability, such as by obtaining a blessing from the Court as to the decision they are seeking to make or in the event a beneficiary has proposed a claim will be brought, by seeking an order requiring the claim to be brought within a timeframe and, if not, their liability is removed. The Court recently considered the requirements for a Trustee to obtain ‘exoneration’ in the case of Parsons and another v Reid and another.

Parsons and another v Reid and another

Case background

In this case, a Beneficiary had suggested a claim would be brought if the Trustees made the distribution they intended. The distribution concerned a Deceased’s estate whose letter of wishes required his Son to be repaid a sum relating to the Deceased’s moral and financial obligations owed to him before the estate would be split between the Deceased’s Son and Daughter.

The sum due to the Son was not specified and a dispute followed as to the sums due. After much discussion, the Trustees decided on a number and had indicated to both of them how they intended to distribute the estate. In response, the Daughter threatened that if the estate was distributed, she would issue a claim against them. This effectively left the Trustees in limbo as they were required to distribute the estate as per their roles as Trustees, but were led to believe if they did, a claim would be brought against them.

The Trustees, therefore, decided to apply to Court requesting that the Daughter be prevented from bringing a claim as she has had sufficient time to bring a claim and had failed to do so before now. In making the application, the Trustees submitted that there was no need for them to provide full disclosure relating to their decision again as the Daughter had already been given sufficient time to issue a claim. The order sought can be distinguished from the general Cobden-Ramsay Order as a Cobden-Ramsay Order would afford the Defendant some time to bring a claim before Trustees escape liability. Generally, Trustees are not required to disclose why they have reached the decision they have when acting in accordance with their discretion.

The Court considered whether the Trustees claim was instead seeking a blessing as to the distribution since they pleaded the Daughter should not be given the opportunity to bring a claim. Regardless of whether the claim was seeking a blessing or a Cobden-Ramsay Order, the Court held the correct procedure required the Trustees to provide full disclosure and provide witness evidence at trial. It was further noted that such extensiveness was required as this was proportionate to the exoneration they sought.

Comment

The case of Parsons and another v Reid and another confirms that Trustees seeking the Court’s authority to escape future liability will be required to disclose the decision they seek to make and also how they have reached that decision. No doubt this disclosure will assist the Court in deciding whether the decision reached is made reasonably and within the Trustee’s powers and obligations.