The period following the death of a family member is understandably emotional and tensions can be stoked by perceptions of unfair treatment even when the instructions set out in a will are being followed to the letter. We recently acted for two trustees who were being accused of acting against the interests of the third trustee, who was also a beneficiary under her deceased husband’s will and who brought a claim for breach of duty.
Background
The deceased was a successful, self-made businessman who had made his money in the construction industry. He had been married twice with three children from his first marriage and two from the second.
He appointed our clients as trustees, alongside his second wife, having worked with them for many years, regarding them as dear friends as well as colleagues. The deceased had made them both aware that his clear wish was for all his children to be treated fairly when he passed away so naturally, in addition to their usual duties as trustees, our clients felt a strong moral obligation to observe and uphold the wishes of their friend.
Creation of trusts under the will
Under his will, the deceased's widow received all his personal items and his share of the marital home and it created a tax-efficient nil rate trust of which the beneficiaries were the widow and all five children. The will also created a further trust of the residuary estate which consisted of all the remaining assets after the other legacies and debts had been satisfied.
This residue trust gave the trustees complete discretion and wide-ranging powers to make capital payments to the widow or to lend capital sums to her. Following the deceased's death, the nil rate trust was appointed into the residue trust as the will's provisions allowed.
Widow accused trustees of breaching their obligations
In addition to the power to distribute/loan capital sums to the widow, the trustees were to pay the income of the residue trust to the widow during her lifetime. Upon her death, the residue trust was to be distributed equally between those of the deceased’s children who had reached the age of 25 years, i.e. the remaindermen.
The widow alleged that our clients had acted in breach of their obligations and demanded that they retire and if they refused to do so, voluntary proceedings would be issued to seek their formal removal. However, she did suggest, as an alternative to their removal, that all three of them exercises their collective discretion to bring the trust to an end and distribute the assets between the life tenant (the widow) and the remaindermen (those children over the age of 25.
Bias alleged
The widow alleged that my clients had given priority to the remaindermen (i.e. the children) at her expense (as the life tenant). She also alleged that they had failed to respond to correspondence and had not reviewed investment arrangements.
A strong response and supporting documentation were sent to the widow's detailed letter of claim resulting in the widow agreeing to attend mediation to try and resolve matters amicably.
At mediation
To assist negotiations between the parties, an actuary was jointly instructed to produce a calculation of the apportionment of the Residue Trust between the life tenant and the remaindermen.
As a result of attending mediation the parties were able to achieve an amicable resolution. This early settlement was made possible because we obtained full information from our clients at the outset so we fully understood their position and were able to make that clear to the widow and her advisers. ~A successful mediation depends on everyone involved entering into the spirit of the mediation process and this proved to be the case in this instance as we were able to achieve a solution that worked for everyone.
Mediation is being actively encouraged as a way of resolving a variety of disputes. It is cost-effective and should produce a better outcome providing both parties fully commit to the process. If you would like to find out more about how mediation could help you, please get in touch and I would be happy to talk to you about how it may help you save both time and money.
July 2024
(updated from 2022)
