Resolution Of Family Disputes And Payments To Non-Beneficiaries - Y Trust [2015] JRC 059

From time to time, trustees may find themselves caught up in family disputes relating wholly or partly to the assets that they administer. Of the militating family members, some may be beneficiaries, but some may not be. The prospect of an out-of-court settlement will usually be welcome news, but there may be complications if the settlement terms involve the trustee distributing assets in a way that confers a direct or indirect benefit on non-beneficiaries.

This is what happened in Y Trust [2015] JRC 059, where the Trustee sought to surrender its discretion to the Royal Court regarding the manner in which it should act in connection with hostile divorce proceedings. The case examines the right approach to be taken in such circumstances.

Background

The assets of the Trust principally comprised a family business. Historically, the Trustee had not interfered in the management of the business, leaving that up to the Husband. However, when it became apparent that the Husband and Wife's marriage was foundering the Trustee took steps to impose itself and ensure that it had proper control of the Trust assets. This involvement was not well received by the Husband.

The Trust Deed (which was somewhat unorthodox) provided for an "Appointer", with powers to appoint and remove the trustees. The Appointer was, according the Trust Deed, to be rendered an excluded person. Whilst it had originally been intended that the Husband was to be a beneficiary, this was inadvertently compromised when he assumed the role of Appointer.

The other beneficiaries were the Wife, their children and their grandchildren (who were minors).

In the course of the hostilities, the Wife made applications to the Royal Court alleging that the Husband had been exerting too much influence over the Trust and its assets, such that he was benefitting personally to the prejudice of the beneficiaries. By contrast, the Husband alleged that the Trustee's actions in seeking to exert control over the Trust assets had caused him serious reputational damage.

Settlement

It was a complex and deeply acrimonious dispute, but one which the Husband and Wife eventually agreed to settle. The terms of the settlement included significant distributions for the benefit of the Wife and their children and also indirectly for the Husband. As mentioned above, the Husband was an excluded person because he was also the Appointer. Therefore, the Royal Court recognised a residual risk to the Trustee connected with...

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