Five things that trustees should learn from the case In Re H Trust

In an unusual case, the Jersey Royal Court has refused to bless the decision of a trustee to sell the trust's sole asset, a property in London, under Public Trustee v Cooper principles. Here are five things that trustees should note from the judgment:

1 - The Court refused to bless the trustee's decision to sell the property despite the fact that the trust was 'cash flow insolvent', so there was no money to maintain property or pay the trust's creditors (including the trustee in relation to its administration fees).

2 - Trustees need to ensure that the records of their momentous decision (in fact, all their decisions) acknowledge any conflict of interests. It was fatal in this case that the trustee's application was completely silent on whether it had considered the conflict of interest between the beneficiaries' interests and recovery of its fees by selling the property.

3 - Professional trustees' obligations to beneficiaries do not end with the trust's apparent insolvency. Discharging those obligations may require them to incur costs without immediate recourse to the trust's assets in order to fulfil these obligations. That includes obtaining tax advice on the proposed momentous decision even when the trust is insolvent (as was the case here).

4 - Even where the beneficiaries have been in litigation against each other for many years and where no firm proposal is in sight, the trustee must ensure that they do they are not seen to adopt a "passive stance". They must actively look to resolve the matter.

5 - All of the reasons why the application was refused could have been remedied. This highlights the need to take good advice in early course to avoid the risk of a failed Public Trustee v Cooper application. Trustees who only engage advisers once a decision has been made risk jeopardising the outcome if it transpires that the process leading up to their decision was flawed – even if a proper process might have led to the same or similar decision.