Navigating Contentious Trusts: Practical Solutions for Trustees

Fairway are proud to have our work published in Thought Leaders 4 High Net Worth Litigation and Advisory Magazine, Contentious Trusts Edition, Issue 22. Jodie Gray, Private Client Director explores how disputes can arise within trusts and highlights how proactive communication, strong trustee-beneficiary relationships, and careful planning can help trustees anticipate issues and manage conflicts effectively.

Read Jodie Gray's insights below:

It’s often said that navigating disputes within a trust can be one of the most challenging aspects of trusteeship. Even with strong governance and an experienced trustee in place, managing conflict is rarely straightforward. While risks can be mitigated through careful planning and oversight, certain circumstances will inevitably give rise to contentious situations that require measured and deliberate handling.

Jersey is a world-leading finance centre, with a robust legal and regulatory framework, making it an attractive jurisdiction for the establishment of discretionary trusts. Traditionally used to assist affluent families in achieving their wealth preservation goals, ensuring that the ‘family silver’ is safeguarded for generations to come, increasingly trusts are being established for a different type of clientele.

Entrepreneurs, often young entrepreneurs with many years of business ahead of them, may wish to set up structures that are less static with the aim of supporting growth and commercial activity as opposed to preserving. In this scenario, trusts are often established as part of wider corporate structures, which can increase the risk to potential disputes. Although these arrangements can increase the scope for more contentious trusts, that’s not to say that disputes don’t arise in traditional family trust set ups too. What’s important when setting up or transferring a trust, is having confidence in your trustee, confidence that they will be able to anticipate potential issues early, by taking a proactive approach, not a reactive one, while remaining within the proper scope of the trustee’s role.

Common factors that can lead to a contentious trust

There are a number of factors that can lead to a contentious trust situation. It could be when a trustee has acted outside the scope of its powers, births, deaths, marriages, the sale of a family business/asset, not adhering to advice, or unforeseen developments such as changes in legislation or a beneficiary changing residency or a corporate dispute (which could be shareholder disputes, issues around the winding up of entities, misuse of fiduciary powers etc.)

As a trustee, we are increasingly required to be sector experts as well as expert trustees. We are often asked to sit on boards of corporate entities, and a lot of our work can now be at corporate subsidiary level. When taking on this role, the trustee needs to be confident they have the right level of knowledge, as when sat on the board of a holding company or a trading company, there is always a live possibility of dispute.

What can a trustee do to minimise the risk of a contentious trust situation?

Building a strong, trusting relationship with clients and relevant parties is essential, underpinned by the consistent delivery of exceptional service. This level of engagement enables a trustee to truly understand the aims, objectives and personalities of the beneficiaries – which can be key to anticipating potential areas of contention. Importantly, it’s never too late to make changes; even when issues begin to surface, proactive steps and open communication can help steer matters back on course and reduce the risk of escalation.

A trustee must also respect the differing opinions of beneficiaries while keeping sight of the bigger picture, remaining objective and acting in accordance with fiduciary duties and the best interests of the beneficial class as a whole. For example, younger family members may hold strong views on ESG and criticise the family business for perceived instability. Balancing these perspectives requires experience, diplomacy and skill, without advocating for individual interests.

In a family trust, a mechanism such as a family charter can be put in place. If the trustee is new, and aware of potential conflicts, conditions can be put in place ahead of the transfer of the trust which can go some way to mitigate potential future conflict.

Corporate disputes can take many forms and become complex when they involve trading companies and holding entities. At the outset, it is recommended detailed conversations about disputes are recorded and agreed. It may be that discussions take place about the role of the trustee in any subsidiary trading businesses, taking a more passive role and allowing the trading entities to be managed by their own boards.

Trusteeship is not just about managing assets, but about managing relationships and expectations. Contentious trusts disputes are on the rise and are increasingly common, but with flexible forward-thinking solutions, clear communication, and a deep understanding of the trust’s dynamics, trustees can navigate these complex situations effectively. Ultimately, this skilled approach ensures the trust remains a source of stability and confidence for the current beneficiaries, both now and for generations to come.