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Who can you trust?


Beneficiaries squabbling, family feuds, trustees in the firing line – disputes are par for the course in the trust world. Christian Doherty looks at the problems that arise and how they can best be resolved

HE TRUST is one of the most important elements of the financial services industry in the Channel Islands. Families, high-net- worth individuals and other parties all use trusts to protect and preserve wealth under

the watchful eye of trustees. Over the past 30 years or so the number of trusts made, managed and administered in Jersey and Guernsey has grown significantly – and unsurprisingly the number of disputes has also increased. This has prompted the Society of Trust & Estate Practitioners (STEP) to launch a Certificate in Trust Disputes and to develop a Certificate in Mediation. Both of these courses are aimed at helping trustees navigate a sensible course through any dispute that might arise. “Generally speaking there are two sorts of dispute,”

says Alistair Davidson, a Partner at Bedell Cristin in Guernsey. “You will get those between beneficiaries, and then you’ll get disputes where beneficiaries or a third party are taking action against a trustee.” Most inter-beneficiary disputes tend to be family affairs.

“A lot of disputes go back to squabbling families,” says Simon Morgan at professional trustee firm Vistra. “When there’s a lot of money involved and there’s a trigger point – usually when someone dies – that’s when there are problems with a family trust.” The family dispute is nothing new, though they are

becoming increasingly common when a second generation of wealth becomes involved. “A lot of trusts are established to manage and protect multi-generational family wealth, so it is no surprise that a large number of disputes originate from within families,” says Brian Conway, Head of Fiduciary Services at Deutsche Bank. “A common example of a family dispute would be the spendthrift child,” he explains. “Here the role of the trustee is often about protecting the child from themselves, should they become tempted to gamble with or abuse funds they thought

they would have access to. The easiest thing is for the trustee to say ‘yes’ and agree to their demands, but the good professional trustee must have a firm grasp of the purpose of the trust and the ethics involved, be able to handle the responsibility and be prepared to be the ‘no man’.”

Family matters One of the highest-profile family-trust disputes of recent years was that of the wealthy Saudi Arabian Al Hamrani family. In that case there was a significant falling out, principally between the brothers. One faction accused the other of using the Jersey trust for its own ends – an allegation that had the effect of pulling the trustees into the dispute. Running from 2002 to 2009, the case was ultimately

settled out of court after epic legal arguments. Bruce Lincoln of Mourant Ozannes acted for trustees JP Morgan. In his view, while the case did illustrate how trusts disputes can get out of hand, it did show Jersey in a good light. “It showed that Jersey as a jurisdiction was capable of

handling significant disputes of that nature, involving various jurisdictions and numerous parties, and the Jersey Court system shows itself well able to cope with that,” he says. But while family squabbles make up the majority of

disputes between beneficiaries, there are other trust disputes that can erupt. They arise when the beneficiary challenges the conduct of the trustee, asserting they have done something that the beneficiary isn’t happy with – whether making poor decisions, or taking bad advice on investment strategy. As Alison MacKrill, Senior Associate at Carey Olsen and

Chairman of STEP Guernsey branch, says: “It may be that the trustee made a decision that has been contested by the beneficiaries – they may have failed to take something into account and there’s been a mistake made.” In cases such as this, where substantial investment funds

are lost, the trustee can find themselves in the firing line. If the trust has lost money, the beneficiary is within their

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