New trustees – a chance for change or the next head on the chopping block?!  

How do families pick a new trustee?  How should they?  What happens to distressed structures?

Wealth brings many benefits to those who enjoy it – freedom, security, opportunity, convenience. Wealth can also bring many burdens – responsibility, isolation, complexity, stress.

For those that can afford them, trusts are a well-known, much used tool to help reduce the burdens borne.  

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The origins of trusts hark back to a simpler time - one-person entrusting responsibility for an important asset to a close friend or family member. Selection of the right trustee was less complicated. Finding someone who was approachable, efficient, knowledgeable and respected was sufficient. Over the years, the use of trusts has extended, as has the choice of trustee and the scope of the role.

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Today, trustees are commonly professional persons or institutions, who hold and manage assets of significant size and value. Whilst the provision of services by a professional trustee means that trusts are more likely to be well structured and managed, there are circumstances when things go wrong, relationships falter and structures become distressed.  Sometimes it becomes necessary for change and for a family to pick a new trustee. 

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Finding and appointing a new trustee is however, rarely an easy and straightforward process. In more challenging circumstances, it can often seem insurmountable, particularly if the incoming trustee is worried about being the “next head on the chopping block”.  Identifying a replacement with the following key characteristics can help to ensure that it is not impossible.  

Independence

The independence of a trustee is always important, whether that be independence of thought or duty. Independence helps to reduce the opportunities for conflict both for the trustee and for the trust structure. This is especially the case in relation to the management of distressed structures. 

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When a trust becomes contentious, it frequently relates to conflict between one or more of the parties to the trust.  A trustee must avoid taking the side of one or more family members over another and ensure that they properly consider all of the beneficiaries - easier said than done, but very necessary.  The personal feelings of a trustee, notwithstanding the length and extent of relationship with the family, often have to be put aside in order to occupy the position of neutrality.  This is always an easier position to achieve when the trustee is independent with no pulls in any direction.   

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Trustees often "wear" multiple hats within a structure.  It is not uncommon for a trustee entity to be related to the entity acting as director of any underlying corporate vehicles.  A trustee must ensure that they don't try  to wear too many hats at once.  There are often simple ways of achieving this such as the imposition of Chinese walls between decision makers i.e. different directors acting in relation to each of the trusts and / or companies.  Having separate “wearers of the hats”, will allow the trustee to focus on their primary responsibility and not be distracted by others.  

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On occasion, the assets of a trust may be managed by an entity related to the trustee entity.  For example, management of an investment portfolio or provision of bank lending maybe carried out by the same bank that owns and provides the trustee. If the matter giving rise to the contention between the parties relates to those services, say issues with investment selection or performance, or onerous lending terms, the arising conflict for the parties can make life very difficult for all concerned.  Appointing a trustee without such conflicts can be a big step towards avoiding contentious circumstances.  

Specialist Expertise

Specialised expertise, particularly in handling distressed trust structures, cannot be overrated.  As a matter becomes increasingly contentious, it is not uncommon for a number of lawyers to be instructed to act for the various parties.  Appointment of a trustee who is legally qualified and has experience in operating structures involved in litigation can be extremely useful.  

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Most trustees are well versed in trying to avoid contentious situations but few run towards them.  A trustee who is also a lawyer will more than likely be well used to dealing with matters that have not worked out as planned and ended up as contentious, especially those with a litigation background.  They will be able to anticipate the trajectory of legal proceedings, often working with families in a pro-active and productive manner to stave off or resolve them as swiftly as possible.  The benefits of a legally qualified trustee extend not just to the family connected to the trust, but also to the lawyers acting for the various family members.  Being able to "speak the same language" as all of the externally instructed lawyers can be invaluable to the trustee, to the beneficiaries, and to the external lawyers, often saving time and money.  

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Conclusion

Whether it be by virtue of desire or need, managing the appointment of a new trustee can be challenging for a family, and even more so if a trust structure is in a distressed state.

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Keeping the above key characteristics in mind when selecting a new trustee can help to focus the process. Appointment of an independent trustee with specialist expertise will help avoid difficult situations from escalating, assist with resolution and help to ensure a long and healthy relationship for all of the parties involved with a trust structure.