Shelter from the storm: The dynamic role of the trustee during times of crisis

By Joe Woodward, Director - Private Wealth, Oak Group

With the Covid-19 pandemic hopefully, and thankfully, past its peak, we are all left assessing the damage, wondering what positives we can take with us into the future but more than anything contemplating what the longer term impact will be. As trustees, we have the additional responsibility of not only going through these thought processes for ourselves but also for our beneficiaries. With many predicting that pandemics will become more frequent in our globalised and highly mobile world, we all have a duty to ourselves, and others, to be better prepared for an uncertain future in which the only thing we can predict is unpredictability…

Decisions, decisions

Whether it's the calm before the storm, its peak or its aftermath, our duties as trustees never change, at least not from a statutory perspective. However, it is in times of crisis that beneficiaries are most likely to look to us for guidance. The crisis may be global but it could just as easily be (and is actually more likely to be) personal. For example, when the world's stock markets are in freefall, trustees need to act diligently and work closely with investment managers to navigate their way through choppy waters.

On a more personal level, it may be that a family business in which a trustee is invested is experiencing its own tough time. In many respects, decisions that are 'closer to home' are much more difficult to make: do you support a struggling business unwaveringly and risk 'throwing good money after bad', or do you cut losses and decide enough is enough? There is no right answer, as each situation will be different. However, the most important thing is for trustees to show that they have given the matter due consideration and can evidence how/why a decision was taken. Needless to say that such evidence will be invaluable in defending against potential future claims/attacks, but taking a more proactive approach, trustees should endeavour to communicate their reasoning to beneficiaries at the time.

It's good to talk

The Trusts Guernsey Law imposes a duty on trustees to act in the interests of beneficiaries, or "en bon père de famille" (a good father of the family). Other jurisdictions have legislation imposing similar fiduciary duties. In playing their role as the 'head of the family', trustees should communicate with beneficiaries as often as possible, giving them reassurance and documentary proof such as minutes of trustee meetings that indicate everything is under control and the necessary steps are being taken. Having an open and consistent dialogue will not only help put the minds of beneficiaries at ease, their input will also help trustees make well-informed and appropriate decisions for the family's future.

One of the long-term impacts of the pandemic will almost certainly be increased use of digital conferencing facilities. When physical meetings are not possible, there is no excuse not to be in regular communication with stakeholders. Trustees should therefore make every effort to 'touch base' with beneficiaries as often as possible. Likewise, if trustees cannot meet in person they may need to resolve matters in writing. It is therefore important for trustees to check the relevant trust instruments to ensure they permit the use of virtual meetings and/or written resolutions. This may be particularly important for directors of private trust companies (PTC's), which could have bespoke articles stipulating how decisions should be reached (quorum, etc.). Finally, trustees (and directors) should work closely with relevant advisers to ensure that the situs of control and management does not have any negative implications, tax or otherwise.

Getting - and keeping - the house in order

When a storm hits, trustees should review the trust assets and obtain updated financial information (accounts, valuations, etc.). Trust instruments and agreements entered into by trustees may also put certain obligations on them and a familiarity with such documents cannot be overestimated. In times of crisis, trustees may seek to renegotiate certain terms (assuming other parties are willing). Amendments may be commercial but could just as easily be practical, for example requirements for the execution of documents. It is important for trustees to check whether there are requirements or restrictions regarding instruments in writing, witnessing or signatures in person, as the execution of documents can be voided if such formalities are not followed.