The recent case at Swansea Crown Court which resulted in a criminal conviction for two trustees who stole £50,000 of trust funds highlights just how seriously trustees need to take their duties. The consequent prison sentences (one suspended) for the trustees also shows how much importance the Court places on those in a position of trust behaving in a trustworthy way.
This case resolved around the estate of Margaret Hill who passed away in 2013. Mrs Hill had created a trust in her Will which stated that her two granddaughters, Jessica Thomas and Gemma Thomas, should receive a legacy of £50,000 once they reached the age of 25. Jessica was 12 and Gemma was 15 at the time of their grandmother’s passing.
The trustees of the trust were Jessica and Gemma’s mother, Katherine Hill, and their grandfather, Gerald Hill. The Judge who heard the case, Recorder Greg Bull KC, found that Katherine and Gerald had not been careful and diligent in relation to the funds at all and were ‘thoroughly dishonest people’. He found that they had lied to Gemma and Jessica about what had happened to the money and that it was not true that they had posted the £50,000 in cash to them and that it had somehow been lost in the post.
Instead, the Court found that the true explanation was that the funds had been originally placed in a Barclays Everyday Saver account which Katherine and Gerald both had access to and to which they had helped themselves. Within a year of opening the Barclays account, all of the funds had been gradually withdrawn as cash. Katherine even paid off some of her partner’s mortgage with the money. As a result, both trustees were ordered to make repayments to Jessica and Gemma.
Katherine was also imprisoned for 30 months and ordered to reimburse her daughters with £50,000. If she fails to repay the money within three months, she will face a further six months in prison.
Given his age of 93 at the time of sentencing, Gerald received a suspended sentence. However, for his part in the deceit, if he does not pay £6,000 to Jessica and Gemma, he will be sentenced to three months in prison.
If the money is not reimbursed after this time, both Jessica and Gemma will have the option of tracing the funds from their mother’s and grandfather’s assets.
What should Katherine and Gerald have done?
Trustees are supposed to look after trust funds on behalf of the people who will eventually receive the trust fund – the beneficiaries. It is possible to be both a trustee and a beneficiary but even if you are, you still have to behave responsibly, honestly and follow the directions in the trust as to who is supposed to benefit. Trustee duties have developed over a long period of time and whether they are appointed in a Will or some other trust instrument, they include a duty to:
- Comply with instructions and provisions contained within the trust. For example, Katherine’s partner was not a beneficiary of the gift so any payment to him was automatically a breach of trust.
- To treat the beneficiaries fairly and impartially, particularly if the beneficiaries have competing interests.
- To avoid conflicts of interest. Trustees should not allow their own personal wants and needs to conflict with their duties and they should always act in the best interest of the beneficiaries.
- To exercise reasonable care and skill when managing trust assets, as a prudent person would take when managing their own affairs. The expectations of what is reasonable can increase if a trustee has a particular qualification or skill, such as if they are an accountant.
Trustees are in positions of trust and the whole trust regime simply cannot function if trustees do not observe their obligations. It must have been a very big decision for Gemma and Jessica to pursue their funds when it involved both their mother and grandfather being prosecuted.
The Court will always prioritise protecting beneficiaries from rogue trustees and will come down heavily on any trustees caught breaching their duties.
Are Trusts Worth The Risk?
In trusts, as in life, there are more trustworthy people than rogues and most trustees take their roles very seriously. With the majority of young people needing some financial help to get on the housing ladder or to get through university, we are seeing more and more gifts to grandchildren in Wills. The youngest age you can receive funds absolutely (not via a parent or guardian) in a Will is 18 but it is common for grandparents to stipulate that inheritance at 21 is better because of concerns around 18 year olds managing lump sums.
It is likely that the monies were left to Jessica and Gemma in a bare trust. This is the most common and simple trust which is often used to pass assets to a beneficiary under the age of 18. The trustee should look after those assets until the beneficiary reaches the age specified in the trust.
In most families, parents do not steal from their children or grandchildren, but it may be wise to appoint a trustee who is independent if you are not sure or if it is a larger some of money. They can act with the parent but it will give an extra layer of safety and supervision – because prevention of breaches of trust is always better and less painful than trying to find a cure.
Conclusion
If you have concerns about a trust or trustee, please do not hesitate to contact us and one of our specialist legal advisors would be happy to assist. You can contact us by phone on: 0345 450 5558 or by email: enquiries@stephens-scown.co.uk