What happens when Trustees can't agree how to distribute funds in Scotland?

A recent case in the England and Wales High Court has shed some light on what happens when trustees are unable to reach agreement regarding the distribution of funds in a discretionary trust. Although this case is not directly applicable to Scotland, it provides an indication as to how deadlock between trustees may be resolved.

The case highlights the importance of deciding who the trustees should be, the number of trustees to be appointed and setting out your wishes as to how the funds should be distributed. In the event of a dispute, this has a significant impact on how any disputes may be resolved in the future and hopefully avoid the need for court action.

Background

In this case, there was a long-standing dispute between a professional trustee and the co-trustees as to the distribution of the funds held in the trust created under a Will. The professional trustee had concerns that the funds were not to be distributed equally between the six grandchildren of the deceased. This was largely because the family were estranged and also due to the alleged conduct of two of the grandchildren, and the professional trustee considered that this had impacted the distribution of funds.

The court’s decision

The court decided that it did have the authority to intervene with the trustees’ discretionary powers in ‘special circumstances’. The court held that it was time to “grasp the nettle” and break the deadlock by stepping in and ruling on the distribution of funds. In so doing, the court took particular account of the length of time and significant costs of the dispute and also achieving the equal distribution of the funds.

How do trustees avoid a deadlock in Scotland?

When creating a trust, either during lifetime or by Will, trustees are encouraged to sign a letter of wishes which set out how they would like the funds to be distributed. Although this is not binding, it is an invaluable guide to the trustees who should take account of these wishes. In addition, the trustees should also act in the best interests of the beneficiaries.

Unless the trust deed states otherwise, such as a trustee having an overriding power of veto, a majority of the trustees normally determines the course of action to be taken in Scotland. It is therefore important to consider the number of trustees being appointed so that a majority decision can be reached if a dispute arises. If however, as was the case here, there was a question over a breach of trust, the court may intervene in particular circumstances. As noted in the above case, however, court action is likely to be costly and time-consuming.

Get in touch

For more information on the creation and administration of Trusts, please contact a member of our team.