Can the trustee simply say they spent it?

The High Court examined a lengthy dispute concerning a trustee's account, highlighting the critical importance of trustees being able to substantiate all claimed expenditures to the satisfaction of the beneficiaries and the Court.

Background:

A trust was established in 2005 in relation to various parcels of land. Andrew and Robert are twin brothers. Andrew is married to Nikki, and Robert was previously married to Ann (and now to Karen). The trust had the effect of redistributing the beneficial interests in the three parcels of land between Robert, on the one hand, and Andrew and Nikki, on the other, and provided for a division of property interests between Robert and Ann as part of their divorce, which took years to finalise. Karen was appointed a trustee of the trust upon the second defendant's resignation on 24 August 2023.

The terms of the trust anticipated that the first property and the associated development land would be developed, but there is no trustee charging clause. The core of the dispute lies in the trustees' account of their dealings with the trust land, particularly the income generated from developing the land (primarily by Robert) and the expenses they claim were incurred and were thus chargeable to the trust.

The legal proceedings began in 2021 after Andrew and Nikki requested an account. As the Judge noted, “One of the curiosities of this claim is that none of the parties appears to have recalled the existence of the trust until after these proceedings were commenced.”

Decision:

The Court ruled that Robert and Ann, as non-professional trustees, could not be held to the same standards as professional fiduciaries regarding record-keeping. The defendants, as trustees, bear the responsibility to prove that the claimed expenditures are properly chargeable to the trust.

The Court determined that Robert’s claims for various legal and development fees were disallowed due to insufficient evidence. The Judge allowed a reduced amount of £375,000 in lieu of £825,000 for certain fees.

The Court concluded that the claimants had not established that the trustees lacked the necessary power to borrow money, nor was there enough evidence to support their objection to claimed legal costs. The Judge noted, “The Court cannot, in my judgement, and taking as an example fees incurred with planning consultants, disallow the sum claimed due to lack of evidence, but allow a lesser sum where there is no evidential basis for the Court to be able to assess a figure. The Court is not in a position to draw upon judicial knowledge or experience.”

Implications:

This case underscores the importance of record-keeping throughout the life of a trust. Trustees bear a significant burden to demonstrate that all claimed expenditures are legitimate and properly chargeable to the trust. This requires more than just asserting the expenses were incurred; they must provide clear explanations, supporting documentation (including invoices and bank statements), as well as plausible evidence.

This decision also shows that beneficiaries not only have a right to a thorough and well-supported accounting from trustees, but they are also entitled to raise objections and hold trustees to strict proof of their expenditure.

It also highlights the courts’ willingness to consider allowances for non-professional trustees acting in good faith, despite the lack of detailed records.