Contentious Trusts – What’s in a name?

Accuro’s Kelly Watson discusses how, when correctly managed, being a “Contentious Trustee” can be hugely gratifying in this article first published in ThoughtLeaders4 Private Client Magazine – Issue 12.
Shakespeare said “That which we call a rose by any other name would smell as sweet.” A trustee who actively chooses to take on the role of trustee of a structure involved in contentious matters is often referred to as a “White Knight Trustee” or a “Contentious Trustee”. Neither are quite correct labels to apply but does it matter?

When trust structures are established, it is often done on the back of sophisticated financial planning and extensive expert legal and tax advice but this doesn’t guarantee that any such structure will be problem free for the duration of its existence. Families fall out, mistakes can occur and sometimes, litigation can ensue. Most trustees prefer to avoid litigation for obvious reasons. A “White Knight” or “Contentious Trustee” does the opposite; actively seeking out opportunities to assist with trusts that are trying to navigate their way through contentious matters. 

A trustee of this kind needs to be particularly strong on the technicalities of trust and company administration, able to deal with families that may be in dispute with each other and the volatile emotions that ensue in these circumstances, as well as readily able to deal with the complexities of litigation. It is no surprise therefore that contentious trustees are often experienced lawyers – after all, the labelling of “contentious trusts” derives primarily from the classification by lawyers of matters involving trust disputes. 

That said, in my experience, specialising as a contentious trustee goes much further than just working on entities that are involved in litigation. Over the years, I have gained considerable experience in working with individuals and structures that many trustees actively avoid for a whole host of reasons, including:
  • trust structures that are subject to tax investigations;
  • trust assets are under a seizure order (known in Jersey as a saisie);
  • trust structures subject to a “no consent” restriction following the submission of a suspicious activity report thus preventing the ordinary operation of the structure;
  • one of the connected parties, such as the settlor or a beneficiary, is under criminal and/or tax investigation; and/or,
  • a trust structure is heading towards insolvency.

In these scenarios, there can often be consequential and unusual difficulties to overcome such as the termination of existing banking relationships by a bank or banks thus requiring the establishment of new banking relationships in short order (not something that is easy to achieve with ongoing investigations taking place) and any existing debt to be refinanced. Or where a saisie is in place, all activity is subject to the consent of the Viscount in Jersey, which can lead to a delicate balancing act for the trustee vis-à vis their fiduciary duties towards the beneficiaries.

Despite unusual circumstances of this nature, these so called contentious trusts are the same as any other trust in that they continue to have assets that need to be administered. The primary difference is that the administration of those assets has to be much more carefully undertaken, with a keen regard to whatever the relevant individual circumstances that make that particular structure fall to be labelled as contentious.

Another key difference for trustees to bear in mind, in the management of contentious work within their businesses. In accepting such work, trustees should consider their own internal corporate structuring, with a view to ring fence and manage their own risks (including reputational) as often such work does end up in the public domain via the Courts. They should also ensure that the trustees’ insurers are made aware of and become comfortable with the controls put in place to manage such risks.

It is not all negativity and caution however, there are some upsides of dealing with contentious structures! Often when taking on so-called contentious trusts as the incoming trustee, you tend to be alive to the major issue(s) affecting the structure and can plan accordingly, even on occasion putting conditions in place on appointment as trustee – for example, obtaining written agreement from beneficiaries that there will be no distributions requested or paid whilst there is a tax investigation ongoing. It is always better to know and address issues upfront than to take on a structure unawares and identify them later on.

Correctly managed, being a “Contentious Trustee” can be hugely gratifying, particularly when successful outcomes are reached for all involved and a trust once considered “contentious” reverts to being just a regular trust structure.

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