Being a trustee can be tricky. It’s like a job, but you’re often working for free and you can be liable for mishaps. Doesn’t really sound that great, does it?
This was the case in the case of Unkovich v Clapham [2020]. A Grandfather left $65,000 to his granddaughter Lara in his Will, to be held on trust until her 21st birthday. If Lara died before reaching 21, the money would go to other family members. The Will included the common provision that Lara could receive money before she was 21, so long as it was for “maintenance, education, advancement or benefit”.
Lara’s parents wanted to access this money before Lara turned 21, so she could fund her education in Australia and focus on her tennis. They believed this would give her the best opportunity to earn a $500,000 scholarship to a University in the USA, and assist a professional tennis career.
The executor & trustee of the Will - Lara’s Aunt - was not so sure. She did not think it would be likely that a professional tennis career would pan out, and refused to distribute more than $26,000 (40%) to Lara before her 21st birthday. The Court held that Lara’s Aunt- who had acted on legal advice - was in breach of her duties as trustee, and would also be personally liable to pay for Lara’s legal costs.
Lara’s Aunt’s downfall as a trustee appears to be because she couldn’t give the Court a good enough explanation why she was not willing to pay out more than 40% before Lara was 21. This is despite Lara’s Aunt having asked Lara’s Family for information on the specific costs of undertaking such an endeavour, and Lara’s Family refused to give such details.
Section 73 of the Trustee Act allows a court to excuse any trustee who has acted “honestly and reasonably and who ought fairly to be excused”, and although the Court thought that the trustee had acted honestly, this didn’t absolve Lara’s Aunt of the obligation to pay Lara’s legal costs.
Whether this result seems fair or not, all trustees need to be aware of their rights and obligations when acting as trustee. The decision to exercise trustee powers (or not) needs to be made prudently, and there can be personal consequences for getting it wrong. We are finding more and more that non-professional trustees are declining appointment, or retiring as trustee.
If you are unsure about any of your rights or obligations as a trustee (or a beneficiary) please get in touch with one of our team.