Trustee privilege and disclosure: A persistent misunderstanding

Summary

It is a point we see crop up time and again in practice: Trustees obtain legal advice, on the assumption that the advice will be protected from disclosure to beneficiaries on the basis of legal professional privilege.

In the trust context, that assumption is often wrong, or at least incomplete.

In practice:

• This will be context-dependent and will usually involve the Trustees balancing various factors, including the purpose and content of the advice, the interests of the beneficiaries as a whole and the likely consequences of disclosure.
• Legal advice provided to Trustees is not ordinarily privileged as against beneficiaries.
• As such, whether it is disclosable to beneficiaries is generally determined by the rules concerning rights to trust information as set out in the Privy Council’s decision in Schmidt v Rosewood Trust Ltd.

Is legal advice to trustees privileged as against beneficiaries?

As a starting point, legal advice obtained by trustees is privileged. Communications between trustees and their legal advisers attract legal advice privilege in the usual way, and that privilege is not lost merely because the advice is paid for out of the trust fund.

However, the crucial and often overlooked question is for whose benefit that privilege is held.

Where trustees obtain legal advice for the purpose of guiding them in the discharge of their functions, and that advice is paid for out of the trust fund, the privilege is generally regarded as being held for the benefit of the beneficiaries, not for the trustees’ personal benefit.

Therefore privilege in such circumstances is not, in itself, a basis on which a trustee can refuse a beneficiary’s request for disclosure of legal advice to trustees. If a Trustee obtained legal advice for the proper administration of the trust and paid for that using trust assets, it would ordinarily be unable to resist disclosure to a beneficiary purely on the grounds of privilege.

That said, the position on disclosure is not absolute. Trustees are not ordinarily required to disclose:

• Legal advice relating to actual or anticipated hostile proceedings between trustees and beneficiaries (for example, advice obtained to defend a breach of trust claim).
• Communications connected with a dispute between trustees and a beneficiary (other than in their capacity as a beneficiary), where disclosure would not be in the interests of the beneficiaries as a whole.
• Advice specifically directed at guiding the trustees in their exercise of a discretionary power, where disclosure would reveal or undermine the trustees’ decision‑making process.

In those situations, privilege may properly be asserted as a reason to resist disclosure, but this must be assessed on a case-by-case basis. Even then, the trustees’ decision remains subject to the court’s supervisory jurisdiction (which is more generally exercised in relation to beneficiaries’ broader rights to trust information, following Schmidt v Rosewood Trust Ltd [2023] UKPC 26).

Disclosure after Schmidt v Rosewood

The second strand of misunderstanding concerns beneficiaries’ rights to trust information more generally, following Schmidt v Rosewood Trust Ltd [2003] UKPC 26.

The Privy Council decision of Schmidt v Rosewood Trust Ltd made clear that a beneficiary’s right to seek disclosure is not based on proprietary ownership of the documents, but on the court’s inherent jurisdiction to supervise the administration of trusts. Beneficiaries have the right to seek disclosure of trust documents, but they are not entitled to receive them as of right.

Whether disclosure should be given is a matter of discretion, to be exercised initially by the trustees and, if necessary, by the court. In exercising that discretion, trustees must conduct a balancing exercise, considering all relevant circumstances at the time. Factors commonly taken into account include:

• The best interests of the beneficiaries as a whole
• Issues of confidentiality (including personal or commercial confidentiality)
• The nature and remoteness of the beneficiary’s interest under the trust
• The purpose for which the information is sought
• The category of document requested

Trustees will need to carry out a balancing exercise of the above factors to decide whether to give disclosure.

Certain categories of documents are commonly disclosed, such as the trust instrument and trust accounts. Others are more commonly withheld, including letters of wishes and documents revealing the trustees’ decision‑making processes.

Crucially, Schmidt v Rosewood also underscores that trustees can face costs risks if they unreasonably refuse disclosure and the court subsequently takes a different view.

Takeaways

Legal advisers and trustees should not prepare or discuss legal advice on the mistaken assumption that it will be privileged as against beneficiaries. Where advice is obtained for the proper administration of the trust and paid for out of trust assets, trustees should proceed on the footing that the right of beneficiaries to see it (and any instructions given to obtain it) will depend on the application of the rules set out in Schmidt v Rosewood.

In practice, this means Trustees must exercise their discretion (in the context of the court’s supervisory jurisdiction). Trustees are required to engage actively with requests for documents from beneficiaries, balancing confidentiality, the interests of the beneficiaries as a whole, and the purpose for which disclosure is sought.