Trustee Decision Making
In your role as a trustee you will inevitable be required to make numerous decisions. The type and number of decisions generally is determined by the nature of the trust, the types of assets the trustees hold, the number, age and types of beneficiaries and whether the trust is actively trading in any type of business or active investment. At the very least, trustee should meet annually to discuss the assets of the trust and the needs of the beneficiaries. All too often however these annual meetings tend to involve trustees signing off a pre-prepared resolution which retrospectively records the prior years financial records with little or no discussion around more current issues relating to the beneficiaries.
With the advent of technology there has also been a trend towards making decisions via email. In fact some trust management tools now advocate the benefits of being able to sign trustee resolutions from the other side of the world via the internet and email.
While email can be an effective way to circulate information and provide some exchanging of views on a particular matter, it is not, a substitute for a formal face to fact trustee meeting. It can often be difficult when reading an email to pick the tone of the writer and short of the writer peppering the message with smiley faces and other forms of expression; we read it as we see it. This lack of ability to “hear” what the writer in saying can potentially lead to misinterpreting the message. Further, we all have different styles of writing, some more formal than others which again can lead to the message not being interpreted in the manner in which it was intended.
Email is a useful tool but it should be confined to being just that. It provides a convenient way of circulating information in a time and cost effective manner. It also enables information to be circulated to a trustee who is anywhere in the world. However any key decisions should still, in my view, be left to be made at a trustee meeting.
A recent ruling of the Royal Court of Guernsey provides a useful reminder of the importance of proper process when it comes to trustee decision making. The case, In the matter of the [AAA] Children’s Trust involved an application to the Court by the trustees to approve a decision by the trustees to sell a property.
The property in question formed a substantial part of the trust’s assets and was referred to by the settlor as the ‘finest jewel in the jewel box’. The settlor had left a letter of wishes to the trustees outlining his instructions that the property should only be sold in ‘exceptional circumstances’ and then ‘at an appropriately extraordinary price such that news will reach [me] even in heaven’. Further, the settlor had been so steadfast in his wish that the property not be sold, he had instructed that his two children were not to dispose of their interest until they reached the age of 40 and even then, he did not wish them to sell it. The property had been acquired to ‘protect their long term interests and security’.
The trustee however wished to sell the property and their decision was supported by the joint protector of the trust who was a long term business associate of the settlor. The sale was opposed by all family members and by the advocate who had been appointed to represent the children, the unborn and the unascertained beneficiaries.
The Court took issue with the process that had been adopted by the trustees in coming to their decision to sell the property and why. In the Court's view the process adopted did not stand up to scrutiny. There was in fact no evidence of a clear-cut decision by the trustees to accept the offer to purchase from the purchaser. Rather, it emerged that there had been a ‘rolling decision’ made over a long period of time, discussed via telephone and email. There were no files notes or records of the relevant factual information considered. Further there were no file notes or comprehensive minutes of the trustee’s deliberations. Therefore it was unclear from the evidence submitted by the trustees as to whether or not a decision had in fact been made and/or what factors the trustees had taken into account in their decision-making process.
The Court accordingly declined the trustees' application to approve the sale.
The above case highlights that trustees need to ensure that they can support their decisions no matter how big or small. Further it illustrates that deliberating decisions via email and telephone are no real substitute for a properly convened trustee meeting.
Trustees are free to adopt their own protocol around decision making but best practice suggests a formal meeting should be convened when the matter to be resolved involves decision making around significant assets or investments or when making decision to make distributions to beneficiaries. Prior to any trustee meeting being called each trustee should receive a full dossier of information, including the agenda and supporting documents.
While email can be used as a tool for circulating information and exchanging views, ultimately decisions should be resolved at formal meetings which are properly convened and deliberations in respect of the decisions to be made are formally recorded together with details of the factors taken into account in the decision making process.
In the matter of the [AAA] Children’s Trust provides a useful reminder to trustees thcat they must take their duties seriously and ensure that all their decisions can stand up to scrutiny.