Legal disputes over trusts containing assets including property jumped 238% during the recession, according to Wedlake Bell, the City law firm
Legal disputes over trusts containing assets including property jumped 238% during the recession, according to Wedlake Bell, the City law firm. Tens of thousands of families have property and other assets held in trust. These range from a simple trust over the family home to trusts holding valuable investments.
Wedlake Bell says that beneficiaries, who have seen the income generated by their trusts or the value of assets held in trusts slump during the recession, have increasingly looked to recoup their losses by bringing claims against trustees alleging their assets have been mismanaged.
According to figures from the Ministry of Justice, the number of High Court claims (Chancery Division, London) involving trusts rose to 44 in 2009, up from 13 in 2008. In 2006 there were just 3 such cases recorded (See graph below). This pattern is likely to be repeated across the country.
Wedlake Bell says that as most claims are settled out of court, these figures only reflect a fraction of the total number of disputes. The actual number of disputes involving trusts is likely to be substantially higher.
According to Wedlake Bell, in disputes reaching the High Court the trustees are usually likely to be banks or professionals such as accountants and solicitors but could include family members.
High Court disputes over assets held in trust
Fay Copeland, Partner in the Private Client Team at Wedlake Bell, comments: “The income generated by trusts will have fallen quite substantially during the recession. In addition, many beneficiaries have seen the capital value of investments and property held in trusts drop, often significantly. Many beneficiaries will have felt that trustees are partly to blame for mismanaging their assets or failing to do more to prevent the losses.”
“Family members often agree to act as trustees without really knowing what is involved. They can then find themselves being criticised and caught up in a dispute. This has become increasingly common as the administration of trusts and the management of the assets has become ever more complex.”
“In many cases family members find that they are out of their depth. Taking on a trusteeship is an onerous task and should not be undertaken lightly. Not all family trustees will be aware that they could be found to be personally liable if their actions or inaction has caused or contributed to a loss in value of trust assets.”
She adds: “Sometimes the loss is due to the deliberate wrongdoing of trustees. We dealt with one case recently where two family members who were trustees pilfered the entire trust, leaving the intended beneficiaries with nothing.”
According to Wedlake Bell, some professional trustees’ fees have risen sharply in recent years, which is likely to have fuelled the anger of beneficiaries who have seen the income from their trusts fall. The sharp increase in trustees’ fees has been caused by the growing amount of red tape associated with managing trusts such as more complex tax rules and anti-money laundering compliance.
Fay Copeland: “Trustees fees’ have increased sharply in recent years. For many beneficiaries who have seen the value of their assets dwindle, this will have added insult to injury, fuelling litigation. It has also led to more trusts being run by family trustees, in which case they need to be fully aware of their duties and the potential risks.”
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