Changing Trustees. Who is entitled to what? 21 November 2018

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1 Changing Trustees Who is entitled to what? 21 November 2018 Joanna Caen, Partner, Head of Private Wealth China, Herbert Smith Freehills Melanie Ison, Managing Director, Nerine Fiduciaries

2 Overview Introduction Indemnities and releases Documents Assets Costs Changing jurisdiction // 2

3 Introduction

4 Introduction Outgoing Indemnity/release Costs Administrative burden Risks of being sued Incoming Full picture Quick as possible // 4

5 Introduction Three main ways to change trustees Trustee A resigns and the holder of the power of appointment replaces the trustee with trustee B Holder of power of removal exercises it to remove/replace trustee Court replaces trustee following application by interested person // 5

6 Indemnities and releases

7 Indemnities and releases Key questions From whom? To whom? How wide? // 7

8 Indemnities Outgoing trustee wants to be in no worse position than if had remained trustee Incoming trustee should check scope of what can be granted over trust assets Back to back/chain indemnities Limits: Time Value What about indemnities from: Settlors? Beneficiaries? Other office holders? // 8

9 Indemnities Indemnity should cover: Outgoing trustee Successors Present, future and former directors, officers and employees Respective heirs, personal representatives and estates of such directors, officers and employees NB: there is no general right at law for reimbursement from the trust fund for a director etc. of a trustee // 9

10 Releases Beneficiaries can release trustees from liability if the trustee acted with the knowledge/approval/acquiescence of the beneficiary But why would they? The outgoing trustee may wish to be released from any indemnity it has given to any former trustee, in favour of an indemnity from the incoming trustee in favour of that former trustee // 10

11 Security for and enforcement of indemnities Security Rare May be appropriate when: outgoing trustee has given reps and warranties re specific assets Changing from trustee co to PTC Changing jurisdiction of trust/assets Insurance? Enforcement What if incoming trustee no longer has assets/can t access them? Claims by third parties that settlor had no right to settle Money laundering/proceeds of crime // 11

12 Documents

13 What is the incoming trustee entitled to? Such documents as it needs to discharge its responsibilities and get in and administer the trust assets No fixed rules Usually: Trust deed and amendments Deeds of distribution/change of beneficiaries Deeds changing the trustee Indemnities to former trustees Letters/memoranda of wishes All title documents Accounting and other financial records (both assets and liabilities) Details of any current legal proceedings/threatened claims Trustee resolutions and minutes // 13

14 What about other documents? General rule if have been paid for by the trust, then incoming trustee generally entitled Incoming trustee also entitled to inspect and copy other documents in so far as they contain information relating to the trust Outgoing trustee must supply any information reasonably requested and must take reasonable care that information supplied is accurate Incoming trustee may ask outgoing trustee to continue to hold documents even after change // 14

15 Assets

16 Assets Most jurisdictions have a provision in their laws which provide that property vests in the incoming trustee because of an implied vesting declaration Hong Kong: 41. Vesting of trust property in new or continuing trustees (1) Where by a deed a new trustee is appointed to perform any trust, then (a) if the deed contains a declaration by the appointor to the effect that any estate or interest in any land subject to the trust, or in any chattel so subject, or the right to recover or receive any debt or other thing in action so subject, shall vest in the persons who by virtue of the deed become or are the trustees for performing the trust, the deed shall operate, without any conveyance or assignment, to vest in those persons as joint tenants and for the purposes of the trust the estate, interest or right to which the declaration relates; and (b) if the deed is made after the commencement of this Ordinance and does not contain such a declaration, the deed shall, subject to any express provision to the contrary therein contained, operate as if it had contained such a declaration by the appointor extending to all the estates, interests and rights with respect to which a declaration could have been made. But this section does not apply to registered shares // 16

17 Assets Although beneficial title may vest under s41 or equivalents, the outgoing and incoming trustees will still have to transfer legal title if required (eg land) Debate about whether life insurance policies need to be transferred Outgoing trustee is under duties: To fully and actively cooperate in the vesting of assets in the incoming trustee To answer questions reasonably asked by incoming trustee about assets To give effect to vesting as soon as reasonably possible Nominee/attorney arrangements need to be transferred // 17

18 Assets At a minimum, incoming trustee should have a copy of the most recent trust accounts, any statements of assets/management accounts, and a list of trust assets // 18

19 Costs

20 Costs Where a trustee is replaced due to hostility between trustees and beneficiaries, the trustee may recover its costs from the trust fund if it acted reasonably in defending the claim Where misconduct of the trustee has been shown, or the trustee should obviously resign, the trustee may be deprived of its costs and may be ordered to pay the claimant's costs Where it is reasonable for a trustee to seek a decision from the court and it is acting in good faith in the best interests of the trust and the beneficiaries as a whole, it will not be deprived of its costs unless it has behaved unreasonably Where a claim is made to remove a trustee in breach of trust proceedings, costs will follow the event and not come out of the trust assets because the proceedings are hostile proceedings between trustee and beneficiary // 20

21 Changing jurisdiction

22 Changing jurisdiction Check the trust deed! Think about: CRS/other reporting obligations Beneficiary rights Tax Perpetuity issues AML/CFT/KYC issues Sanctions, etc. // 22

23 Questions? Melanie Ison, Managing Director Hong Kong T: Hong Kong Herbert Smith Freehills 23rd Floor, Gloucester Tower 15 Queen s Road Central Hong Kong T F Herbert Smith Freehills is a Hong Kong partnership which is affiliated to Herbert Smith Freehills LLP (an English limited liability partnership). Herbert Smith Freehills LLP, its subsidiaries and affiliates and Herbert Smith Freehills, an Australian Partnership, are separate member firms of the international legal practice known as Herbert Smith Freehills. The contents of this publication, current at the date of publication set out in this document, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication. Herbert Smith Freehills 2018 史密夫斐爾律師事務所 (Herbert Smith Freehills) 是與 Herbert Smith Freehills LLP( 英國有限責任的合夥企業 ) 關聯的香港合夥企業 史密夫斐爾律師事務所 (Herbert Smith Freehills LLP) 其附屬企業和關聯企業以及澳大利亞合夥企業 Herbert Smith Freehills 均為國際律師事務所 Herbert Smith Freehills 旗下的獨立成員單位 本刊內容以出版當日為准, 僅供參考 其內容不構成法律意見, 不應作為法律依據 如需依據本刊內容採取任何法律行動, 請根據具體情況向相關司法管轄區域的律師諮詢法律意見 Herbert Smith Freehills 2018 版權所有 // 23

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