Once Known Never Forgotten
Once Known Never Forgotten
When a Trust comes to an end the Trustees have to pay off creditors and their own administration costs and thereafter pay any assets to the beneficiaries according to the terms of the Trust.
However there can be situations when Trustees are not aware of beneficiaries and/or creditors. In order to gain protection there are essentially two steps that Trustees can take, they can obtain insurance and/or advertise under Section 27 of the Trustee Act. An advertisement essentially allows Trustees to advertise for any creditors or beneficiaries of which the Trustees have no notice. If no-one responds the Trustees can distribute.
It is a useful provision that Trustees engaged in the winding up of a Trust will utilise. A difficult question however is what is “notice”.
In a recent case the Court had to consider the winding up of the Maxwell Pension Scheme. The Trustees had advertised for missing beneficiaries before purchasing insurance and using the surplus to provide increased benefits to the known members. However, after the distribution, the Trustees discovered that there were another 30 or so members who had been lost off the records. The insurers paid out those “lost” members and are now pursuing the Trustees in negligence.
The Court had to consider as a preliminary issue whether or not the Trustees had any liability because the Trustees had advertised and the missing beneficiaries had not responded.
The Court found that “notice” is not the same as knowledge. If a trustee forgets that a beneficiary exists this does not remove the fact that the Trustee had notice of that beneficiary. In other words if a Trustee ever knew of a beneficiary then simply forgetting about them will not allow the Trustees to claim protection under Section 27.
This decision emphasises the need for Trustees to maintain well administered records. Pension schemes can last for substantial periods and can have potentially thousands of members and so the importance of keeping records throughout the scheme and certainly at the end of a scheme is crucial for the Trustees’ protection.
