A recent case in the Victorian Supreme Court has provided a timely reminder to trustees of family trusts: in the trust minutes, trustees are better off not explicitly setting out any reason for making a particular decision (such as distributing income or capital of the trust).
Trustees are afforded discretion to make decisions regarding the trust without disclosing their reasons for doing so. While beneficiaries are entitled to access trust documents (for example, trust accounts and the trust deed), they are not entitled to the reasons for making a particular decision if the trustee has discretion to do so.
The one exception is where the beneficiary alleges fraud. In that situation, the reasons for the trustee’s decision may be open to scrutiny by the court. That is why Castle recommends that the minutes not set out any reason for making a particular decision. However, we are aware that many third parties require trustees to do precisely that.
Details of the case
In Mandie v Memart Nominees Pty Ltd [2014] VSC 290 the plaintiffs, two beneficiaries, sought the following information:
- what information the trustee had concerning the personal and other circumstances of the plaintiffs, and
- from whom the trustee obtained that information.
The plaintiffs contended that:
- they were merely seeking information as to the basis upon which the trustee acted, or
- alternatively, the trustee had already volunteered some of its reasons and was no longer entitled to claim the protection generally afforded under the law to trustees of discretionary trusts from having to disclose their reasoning.
Macaulay J held the proceeding was simply an attempt to get around the protection, which one can only do if one actually alleges fraud. As the plaintiff did not allege fraud had taken place, the judge held that the trustee was within its right to act as it had.
The judge dismissed the application.
We can help
If you have a client who is not sure about the best course of action to take regarding any of the issues discussed in this article, we can help. Give us a call on 03 9898 6666.