Insights

Disputing Trustee Charges — The Importance of Acting Quickly

If you are the beneficiary of a trust, you might have questions about your trustee and the charges they are receiving in connection with running your fund. Perhaps it doesn’t seem right, or you believe they shouldn’t be receiving these payments. If you feel this way, the most appropriate solution may be to challenge trustee charges and expenses.

In cases like this, it is important not to delay in gathering all the information necessary to make a claim; otherwise, you may not be able to change the situation. This article will help you understand which types of trustees can receive payments, what constitutes reasonable trustee fees, and how you can challenge these charges.

Is a trustee entitled to charge for their service?

Whether a trustee is entitled to charge for their services depends on a few factors, particularly on whether they are a professional trustee. When a trust is established, the person creating the trust (known as the settlor) chooses trustees to manage it. They can choose friends or relatives (called lay trustees) or professionals such as solicitors or accountants.

In general, trustees should not be paid for their services. This principle is based on the idea that trustees should not benefit from the trust property, as it could create a conflict of interest. However, there are some exceptions to this rule:

  • Professional trustees: If the trust deed specifically allows for a professional trustee to be paid, they can receive compensation for their work.
  • Written consent of other trustees: If the trust deed doesn’t have an explicit clause allowing for professional trustees to be paid, a trustee can still receive reasonable remuneration if the other trustees provide their written consent.
  • Beneficiaries’ consent: In some situations, the consent of the beneficiaries may be required, especially if they hold a significant interest in the trust fund.

It is crucial for a trustee to provide details of their fees to other trustees and principal beneficiaries before they take on the role. While professional trustees can charge for their services, lay trustees should always act free of charge unless otherwise specified.

Is a beneficiary entitled to challenge trustee charges?

A professional trustee should only charge “reasonable remuneration” for their services. If their charges exceed what is reasonable, a beneficiary is entitled to object. However, it is crucial to raise an objection as soon as possible. Otherwise, this may lead to problems when contesting the charges.

The Importance of Transparency and Communication

Open and transparent communication between trustees and beneficiaries can help prevent misunderstandings and disputes. Trustees should provide regular updates, including annual statements, fee breakdowns, and any changes in trust management. 

Beneficiaries, in turn, should feel comfortable asking questions and raising concerns. When communication breaks down, misunderstandings can lead to more serious conflicts.

Related: 8 of the Most Common Questions about Trusts and Trust Funds

Misappropriation of Estate Assets and Trust Funds by Trustees

One of the significant risks associated with trustee fees is the potential misappropriation of estate assets or trust funds. Misappropriation occurs when a trustee uses trust assets for personal gain or diverts these funds in a way that conflicts with the terms of the trust. Beneficiaries who suspect misappropriation of trust funds by a trustee should take immediate action to safeguard their interests. Trustee embezzlement is a serious breach of duty and can lead to financial loss for the beneficiaries as well as legal consequences for the trustee, including civil and criminal penalties.

Signs of Misappropriation

  • Unexplained transactions: Large or frequent withdrawals from trust funds without clear justification.
  • Lack of transparency: Trustees who are unwilling or slow to provide financial statements or clarify their activities.
  • Conflicts of interest: Trustees using trust property for personal benefit or making decisions that favour themselves or related parties.

If you suspect that a trustee is guilty of misappropriation, you can challenge their actions through the following steps:

  1. Request an audit: Ask for a detailed accounting of the trust’s assets and transactions.
  2. Gather evidence: Collect any documents, emails, or communications that may indicate improper conduct.
  3. Seek legal advice: Consult with a solicitor who specialises in trust disputes. They can help you understand your options and the best course of action.

Trustee embezzlement not only affects the financial stability of the trust but also undermines the integrity of the trustee-beneficiary relationship. Taking swift legal action is essential to protect the trust’s assets and hold the trustee accountable.

 

Case Study:

Why Timing is Crucial When Disputing Trustee Charges

One of the most critical factors in disputing trustee charges is acting quickly. Delaying an objection can have negative consequences and may even be viewed as acceptance of the fees. 

In the case of Pullan v Wilson [2014] EWHC 126 (Ch), the beneficiary’s failure to object to the trustee’s excessive hourly rate until two years later was deemed as accepting the charges. This resulted in the beneficiary losing the right to contest the fees.

Typical Trustee Fees: What to Expect?

Different trusts require varying levels of maintenance and management, and trustee fees can vary significantly depending on the complexity of the trust. Although your initial thought might be that a trustee is being overpaid for a service, it is essential to understand that costs are relative to the trust, and there is no one-size-fits-all in terms of fees.

We have outlined some typical costs associated with trust maintenance:

  • Annual trust maintenance: For lower-level administration and organisation, annual trustee fees start from £850 +VAT. This would typically include preparing the trust account and organising the tax return.
  • Higher-level administration: For more complex trust maintenance, annual fees start from around £1,450 +VAT. Trust funds that fall into this category usually have a higher value, multiple beneficiaries, or require complex legal or financial expertise.
  • Additional fees: Additional fees may include the creation of deeds of appointment or retirement, as well as costs related to changes in trustees. Solicitors might also charge hourly fees if additional advice or maintenance is needed.

Emily Shearing, Head of Wills & Trusts at Burt Brill & Cardens, suggests that a warning sign to look out for is if the trust management fees are disproportionate to the amount of money in the trust fund. A professional trustee’s fees should be based on the nature and value of the services they are providing, and if the work does not require a high level of skill, their charges should reflect this.

If you are unsure about the reasonableness of trustee fees, you can reach out to us for a consultation. Understanding the nuances of trustee fees can help prevent unnecessary disputes.

Related: Trustee Appointments and Conflict of Interest

How to Challenge Trustee Charges

If you believe a trustee is charging in excess of what is reasonable, it is important to raise an objection as soon as possible. Don’t agree to their rates and let them know about your concerns immediately. If you don’t complain and allow them to continue working, it might be seen as agreeing to their high fees.

To challenge trustee charges, you should:

  1. Put your concerns in writing: Clearly outline your objections and provide any supporting evidence.
  2. Request fee justification: Ask the trustee to provide a breakdown of their charges and justify why these fees are necessary.
  3. Seek mediation or dispute resolution: If the trustee does not agree to reduce their fees, you may consider seeking mediation or dispute resolution services. This approach can be less adversarial than going to court.
  4. Consider legal proceedings: If mediation does not resolve the issue, you may need to initiate legal proceedings to have the fees reviewed or the trustee removed.

At Burt Brill & Cardens, we have extensive experience in handling trust disputes and can guide you through the process of challenging excessive trustee charges.

The Role of the Court in Trustee Disputes

In some cases, disputes over trustee charges or misappropriation may need to be resolved through court proceedings. The court has the power to:

  • Review trustee fees: If the court determines that the trustee’s charges are excessive or unjustified, it can order a reduction or reimbursement of fees.
  • Remove a trustee: The court can remove a trustee who has breached their fiduciary duties, misappropriated funds, or engaged in misconduct.
  • Order restitution: If a trustee has misappropriated trust assets, the court can order them to repay the funds or compensate the beneficiaries for the loss.

Court intervention should be considered as a last resort after other dispute resolution mechanisms, such as negotiation and mediation, have been exhausted.

What should I do?

If you are unclear about how trusts work, or you are unhappy with a trustee and believe too much is being paid in fees or suspect the misappropriation of trust funds, reach out to our solicitors at Burt Brill & Cardens for expert guidance and support tailored to your unique circumstances. Acting quickly is important, and we need to make sure we can help you as soon as possible.

To speak to one of our trust specialists, ring us on 01273 604 123, email us at enquire@bbc-law.co.uk or fill in our enquiry form.

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