Is a Beneficiary of a Trust Entitled to Legally Privileged Trust Documents?

When presented with this question many good lawyers would at first glance and without thinking it through probably answer “Good question…. The answer is “no”.

Others lawyers that are more battled wearied may answer it with a question “Who would win a fight between a lion and a tiger?” which is another way of saying that old chestnut “it depends”. 

There is no question that nearly all trustees will not want to release anything at all to a beneficiary (particularly if they are estranged, troublesome, and up to no good). 

The Beneficiaries – who are they?

Beneficiaries (commonly in the modern commercial world and in the context of disputes regarding deceased estates) can include:-

• discretionary (primary and wider beneficiaries) of discretionary trusts;
• children of members of super funds (they are potential recipients of a death benefit payment – this extends to spouses and those in interdependency relationships – it can also extend to extramarital partners and de facto partners of married members);

What documents might a Beneficiary want to see? 

Often they want to see if any mistakes have been made by a Trustee along the way (to assist them to mount or improve a claim).  

They will want anything they can get their hands on including:-

• Financial Statements;
• Investment Strategies and Trustee Minutes;
• Investment Advice;
• Deeds of Variation and Appointment of New Trustee (the full document trail);
• Pension Documents.

Generally, there are two different types of information:

1. trustee information, being information generated or held for the purposes of a trust, and which a trustee would be required to hand over to a replacement trustee;
2. personal information, being information held by a trustee relating to a trust which is personal to the trustee, and paid for by the trustee.

There are three ways for a beneficiary of the trust obtaining this information:-

1. the Trustee willingly discloses the information;
2. a superior court (using its inherent jurisdiction) orders it be disclosed; or
3. when litigation is on foot, the documents are disclosed as part of the court disclosure rules.

The first category of documents (trustee information) is vulnerable to being disclosed to beneficiaries.

The second category (personal information) on the other hand is not, but it may be relevant to issues in litigation and therefore be required to be disclosed in accordance with disclosure rules in the course of the litigation.

For both categories, a Trustee may be able to claim privilege to resist disclosure of documents.

In the recent New Zealand case of Lambie Trustee Ltd v Addleman  https://www.courtsofnz.govt.nz/assets/cases/2021/2021-NZSC-54.pdf it was found that all advice in issue in the proceedings was covered by legal professional privilege so that, against non-beneficiaries, the Trustee was entitled to assert privilege.

Importantly though, the Court confirmed that a trustee is not entitled to privilege against a beneficiary of the trust in respect of advice on issues in which the trustee and beneficiary have a joint interest.  In this case, the Court found that the Trustee and the Beneficiary had a joint interest in the administration of the Trust and therefore Trustee could not claim privilege in relation to the legal advice obtained by the Trust regarding its administration.

If there is bitterly fought out litigation between the Trustee and the beneficiary the position is different.  The court said:-

“What is required for the joint interest exception not to apply is that the advice be sought for the dominant purpose of defending litigation. Given the obligations of a trustee to act appropriately and in the interests of the trust as a whole, the starting point for the courts should be the assumption that trustees seeking advice in respect of contemplated litigation are looking for guidance as to the right course of action (in respect of which the joint interest exception will apply). And the courts can expect trustees not to seek advice as to how to resist litigation without having first sought advice (to which the joint interest exception will apply) as to the appropriate stance to take on the point at issue.”  “The authorities generally support the view that once a beneficiary commences litigation concerning the administration of a trust, the litigating beneficiary is not entitled to disclosure of legal advice received by the trustees in relation to that litigation. The judgments on the point tend to be succinctly expressed but they must proceed on the basis that, from that point, the beneficiary and trustees no longer have a joint interest in the subject matter of the litigation.”

To summarise, once litigation had commenced, the trustee and the beneficiary were in competing positions so the “joint interest exception” to privilege would not apply.

Beneficiaries and trustees share a joint interest in the due administration of a trust and therefore in legal advice as to that administration. A trustee is not entitled to assert privilege against a beneficiary in respect of advice on issues in which the trustee and beneficiary have a joint interest.

Trustees (who must act in good faith at all times) should assume that all trustee information could be disclosed to beneficiaries unless it is created when there is contentious litigation between the trustee and the beneficiary and is for the dominant purpose of that litigation.

The same principles discussed in the Lambie Case apply and similar results can be expected in Australia.