TRUSTEE/DIRECTOR CONFLICTS – PART IV

September 22, 2006 Hull & Hull LLP Archived BLOG POSTS - Hull on Estates, Executors and Trustees, Trustees Tags: , , , , 0 Comments

There are some solutions for resolving the problems of conflict of interest between directors in the director/trustee role which I’ve been discussing in the last three blogs. Some of the potential solutions are as follows:

1. Muliple executors – where there is at least one trustee who has an inherent conflict of interest, that conflict can be balanced out by having one or more co-trustees who can generally put the interest of the trust first without valid conflict of interest problems. That way, the beneficiaries who complain about the conflict of one trustee can be answered by the fact that that trustee was outvoted by the other two in any event. The trustee with a conflict might even decide not to vote on decisions that invoke the conflict of interest.

2. Disclosure of information to beneficiaries on an early and comprehensive basis – is another way to avoid allegations of conflict of interest. At the very least, beneficiaries can be canvassed to see whether there is going to be a problem with a particular decision. If they fail to object, it is somewhat less likely that they will do so later on and the Court may have sympathy for an executive that gave them the chance before making the decision.

Another benefit of disclosure is that problems can be identified early. That way, if there is going to be an obvious problem with a decision, the trustee can reconsider the decision and only make it if it is very obvious that it is the right decision, after ensuring that the reasons for the decision are very well documented and disclosed to the beneficiaries before the decision is made. This will assist in identifying problems early so that they can be dealt with before tremendous changes have taken place, and also dealt with in a manner that best protects the trustee from a complaint that he knows is going to be made.

3. If possible, the trustee should also obtain the consents of the beneficiaries to a course of action. This is not required by law, but on a practical basis it can be extremely helpful in protecting the trustee if complaints later arise.

4. Estate Planning – the testator can be a tremendous help to a trustee if all these issues are considered when a Will planning is being done. That requires solicitors to identify the issues for the testator. This of course means that an estate plan is going to be more detailed and likely more expensive, but the expense is probably well worthwhile given the tremendous expensive litigation fees that might be avoided.

At the end of the day, someone must be found to step into the role of trustee/director,. With good legal advice and early awareness of the potential problems, the dual role can be properly navigated without undue controversy.

Thanks for reading. Sean. ——–

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