Lawyers examine a prominent UK case relating to an attempt to replace trustees of family trusts overseeing a large estate.

In a case in the UK, the family of the Marquess of Hertford is caught in a very public dispute with William Seymour, the Earl of Yarmouth and eldest son of the family, who is seeking a court order to replace the trustees of family trusts which oversee the family's £85 million ($110.3 million) estate, Ragley Hall. The Earl has claimed, among other grievances, to have been denied early inheritance of the estate and been evicted from his home.

Lawyers from Withers, Sarah Aughwane, partner, and Rosalind Russell, associate, in its trust estates and inheritance disputes team, explore what the case means. (Both are pictured below.) The editors are pleased to share these views; the usual editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

Sarah Aughwane


Rosalind Russell

It has been said that there are three sides to every story: your side, their side, and the truth.  

In trust disputes there are frequently three “sides” with trustees caught between the warring beneficiaries' respective camps. The Earl of Yarmouth's recent high-profile attempt to remove the trustees of trusts holding the family's £85 million estate, following a falling out with his father the Marquess of Hertford, is an example of just that.

The question for trustees in such circumstances is whether they can find a way to be the 'truth' between the beneficiaries' opposing views? Trickier still, can they get the beneficiaries' buy in?  

If they can, the families they serve might be spared the misery of a protracted and public airing of private grievances. If they can't, they face the unhappy prospect, like the trustees of the Hertford family trusts, of being dragged to court and accused of exacerbating or fuelling family disputes. Very often, even if not at fault, stepping down is then an inevitable part of resolution.

Assuming the role of peacekeeper is a laudable aim but it can be easier said than done.

One of the difficulties for trustees – and particularly trustees of generational wealth – is that there is often a perception of partiality to one generation or another. It appears from what has been written about the Earl of Yarmouth's claim that one of his complaints against the incumbent trustees is that they are too closely aligned with his father.  

Perceived partiality may have several causes, but it is a particular hazard where trustees (or officers of trust companies) are friends or contemporaries of the settlor or the senior generation of beneficiaries.

There can sometimes be confusion on the part of the trustees themselves about their role. There are numerous judgments of English and offshore courts reciting sad tales of trustees (and protectors) who allowed their loyalty to a settlor's vision and values to take precedence over the interests of the beneficiaries. Suffice to say that doesn't end well for the trustee.

Of course, the perceived partiality may be just that – perception without substance. One of the challenges for trustees is that beneficiaries seeking removal can sometimes orchestrate circumstances in which the court is likely to remove them, even though objectively the trustee has done nothing wrong. The mischief lies in the test for trustee removal which Lord Blackburn encapsulated in the case of Letterstedt v Broers as follows:

“If it appears clear that the continuance of the trustee would be detrimental to the execution of the trusts, even if for no other reason than that human infirmity would prevent those beneficially interested, or those who act for them, from working in harmony with the trustee…the trustee is always advised by his own counsel to resign, and does so.”

That leaves it open to disgruntled beneficiaries to engineer hostility that is detrimental to the execution of the trust and to achieve the removal or retirement of trustees who have been acting perfectly properly, even though the courts have said that hostility alone is not enough.

For families seeking to avoid that kind of situation occurring (or reoccurring), communication is key. And trustees who have the confidence of the generations can help to build (or repair) bridges where necessary.

The question is, what can trustees do to encourage beneficiary confidence across the generations?

Every family is different, but there are simple strategies we have seen succeed:

1. Succession planning is not just for the family. Dynastic trusts usually originate as a partnership between the original settlor and a trusted advisor. Without forward planning, there is a risk of a “cliff edge” with the first-generation family members and trustees moving on at the same time, leaving not only beneficiaries but also trustees who are new to the structure. It is more difficult to build a working relationship in circumstances where neither party feels on truly solid ground.

This can be managed by bringing new trustees (or trust officers in corporate trustees) on board as part of a natural progression, before the original trustee(s) exit. It is only natural for some younger beneficiaries to build trusting relationships with a peer who understands their outlook and may be undergoing the same life events (for example, children the same age).  

Second-generation trustees and beneficiaries can "grow up" in the structure together. 

2. Communicate early. Often a beneficiary's perception of their treatment is driven first and foremost by disappointed expectations: a decision which the trustee believes to be consistent with their usual distribution policy might be poorly received by a beneficiary who does not know what the usual policy is or understand how it came to be that way. In these situations, the trustee may – not unreasonably – struggle to understand why, what they expected to be an uncontroversial decision, has caused such unhappiness, and the relationship suffers even though the trustee has technically done nothing wrong.

Mixed messaging of this kind can often be averted by sitting down with every beneficiary when they turn 18 (or whenever felt appropriate) and explaining how the trust works, who their points of contact are, what they can expect and, critically, any pressures that will restrict the trustees' ability to accede to beneficiary requests.

3. Be upfront about “ground rules” (and keep those rules simple and consistent). If the trustees expect beneficiaries to get prenuptial agreements, or to avoid becoming resident in certain jurisdictions, make this clear before it happens and not as it is happening (or worse, afterwards). Doing so can help to frame the “rule” as an expectation that applies to all beneficiaries rather than a reaction to the choices or situation of one beneficiary.

4. It can be equally important to keep the dialogue two-way. Some trustees run into difficulties by remaining too faithful to the settlor's vision and refusing to allow the trust to adapt as time goes on. Beneficiaries can grow frustrated if they perceive that they are being told 'no' purely because “this is the way it's always been.” 

In some trusts it will be appropriate to discuss 'vision' with the beneficiaries, educate them about the parameters trustees must work within and the challenges which their specific trust faces, and seek their views on the direction the trust should be taking. 

Trustees may be tempted, when things start to feel tense, to pull back and agonise over what information to share, or to simply pull up the drawbridge altogether. But doing so could make things worse and increase the risk of a dispute along the lines of that plaguing the Marquess of Hertford and the Earl of Yarmouth. Grasping the nettle early and communicating clearly and directly with beneficiaries about the source of tension can – if the correct foundation has been laid – mean that the beneficiaries are able to hear and accept the 'truth' in the trustees' position.