Case Study Practical analysis of common issues in family trust - PowerPoint PPT Presentation

Case Study Practical analysis of common issues in family trust disputes ___________________________________________________________________________________________________________________ Charlotte Fraser, Joanna Poole and Adam Carvalho, Contentious Trusts and Estates Team

The Rossi Family Trusts Background Alberto Rossi is aged 78. He left Naples for London in the 1960s. After working in an ice cream parlour, he established his own ice cream brand, “ Gelato ”, which grew to become the leading brand across Europe, with a current value in excess of £200m. Alberto married Rosemary in 1970. They have three children, Marco, Bella, and Stephano, all of whom are now adults. Marco and Bella each have two young children. Alberto and Rosemary divorced in 1987, after Rosemary got tired of Alberto’s philandering ways and, at times, erratic behaviour. In 1985, Alberto settled the shares of Gelato in the Rosemary Trust, a discretionary trust for the benefit of his children and remoter issue. Alberto is not within the class of beneficiaries. However, he is the protector of the Rosemary Trust. At the date of its establishment, Alberto wrote a letter of wishes setting out his dynastic intentions for the trust and his wish that future generations benefit from it. He also stated that during his lifetime he would like the trustee to be guided by him in relation to investment of the trust fund, and in the exercise of their dispositive powers. The current trustee of the Rosemary Trust is Premier Trustee. The directors of Gelato are Alberto, Marco and Stephano. In 2015 Marco and Stephano persuade the trustee to invest £30m in a coffee business “ Espresso ”. The shares in Espresso are held in the Basil Trust, a newly established discretionary trust, with a similar class of beneficiaries to the Rosemary Trust. Premier Trustee is the trustee. There is no Protector of this trust. The directors of Espresso are Marco and Stephano. The following events occur: 2

Capacity Alberto writes to the trustee and his children saying he has been possessed by evil spirits. They then discover he has married Kitty, a 23 year old, he met in a bar three weeks before. It subsequently emerges that Alberto has sent a number of bizarre and offensive letters to key employees of Gelato as well as to some of their industry contacts. A day after receiving Alberto’s letter, the trustee receives an updated letter of wishes. He asks the trustee to ignore all previous letters of wishes and says that he no longer wishes any of his ungrateful and lazy children to benefit. Instead, he would like the trustees to add his wife Kitty to the class of beneficiaries, and regard her as the principal beneficiary both during his lifetime and after his death. Upon adding her as beneficiary, Alberto would like the trustee to make an immediate distribution to her of £8m to enable her to purchase her dream flat. So far as his consent as Protector is required, he gives it. If the trustees do not follow his wishes, he says he will ensure they are removed and replaced with Kitty’s sister Honey and, pending that, will refuse to consent to any request the trustee might make of him. Marco has previously described his father as bipolar and suffering from schizophrenia. They have been on bad terms for several years. What should the trustees do 3

Disclosure The trustee receives an email from a lady called Poppy, who claims to be the daughter of Alberto Rossi, and the product of a fling in 1982 between Alberto and her mother. She says that she has been told by Alberto that she is a beneficiary of family trusts which hold “ insane amounts of money ”. She requests: (a) Confirmation of whether she is a beneficiary of any family trusts; (a) Copies of any trust deeds; and (a) Copies of trust accounts for the last 5 years. Should the trustee provide Poppy with the disclosure she is seeking? 4

Disclosure Bella has fallen out with Marco and Stephano because they won’t let her have a role in Espresso, the shares of which are held in the Basil Trust. She asks the trustee who tells her that, it is not appropriate for them to get involved. Bella is not happy with this response. She believes the trustee has very little, if any, involvement in or oversight of this company. She also believes that Marco has the trustee’s ear and that it simply does whatever he asks. She is concerned that Marco plays fast and loose with his directors duties and is suspicious that Stephano and him are syphoning off company funds, either by paying themselves huge salaries and bonuses, or by making “loans” to themselves. She engages solicitors to write to the trustee to outline her concern that it is not fulfilling its duties and requests the following information: a. What investment advice the trustee took when it invested in Espresso and copies of that advice; b. An explanation for why the trustee not consult all the beneficiaries before making such a large investment in Espresso; c. What dividends have been made by Espresso to the Trust; d. What distributions have been made from the Trust to other beneficiaries; e. What processes are in place for the directors to report to the trustees; f. Copies of all trustee minutes. How should the trustee respond to Bella and should they provide her with the information she has requested? 5

Conflict of interest and settlement In an attempt to resolve the issue of Alberto, and given the urgency of the situation the trustees didn’t make a court application. Instead, they appointed out the Gelato shares to the Basil Trust and obtained indemnities and releases from Marco, Stephano and Bella. Six months later, Alberto seemingly, recovers from his schizophrenic episode. His marriage to Kitty is annulled. He instructs solicitors who write to the trustee making various allegations, including seeking to set aside the original settlement of the Gelato shares on the basis that he lacked capacity. They also make various breach of trust allegations including in relation to the appointment out of the Gelato shares without his protector consent. The family meet to try to resolve matters and come up with a draft settlement which they then put to the trustee seeking its agreement. The terms of the settlement include:  Alberto and several mental health charities will be added as beneficiaries to the Rosemary Trust  Alberto’s children and remoter issue will be excluded from the Rosemary Trust  The Rosemary Trust will then purchase 51% of the shares in Gelato from the Basil Trust, for the sum of £50m.  The £50m received by the Basil Trust for the shares in Gelato will then be distributed between Marco, Bella and Stephano. Although the adult beneficiaries are happy with this, the proposed settlement raises a number of issues for the trustee. 6