Increase in trust litigation will hurt the industry

Date: 18 Sep 2015


Randall Krebs, general counsel at Meritus Trust Company Limited, Bermuda, says the increase in willingness to litigate can results in trustees becoming very risk-adverse.

What trends do you see in trustee litigation?

Trust litigation is on the rise. However, I am not sure that ultimately the increase in willingness to litigate is in the best interests of the industry. It results in trustees becoming very risk-adverse, potentially to the detriment of the families and trusts. I suspect it will also result in an increased use of private trust companies, which could lead to tax, planning and other problems that could have been avoided with the use of an institutional trustee.

Meritus has been established for five years which means we don’t have the same sort of litigation risk that older trust companies face, for example due to the downturn in economy and its impact on investments. Another area of litigation that a new trust company will not experience to the same degree as an older trustee is litigation arising on success from one generation to the next. For various reasons, the next generation is often less willing to continue with the advisors used by their parents. Again, this type of litigation is not new, but seems to be an increasing feature of the private client world.

What are the issues around investments?

I think it is far easier for beneficiaries to access information about the markets, and for them to become involved in critiquing the performance of the investment portfolio. Often, their evaluation of performance is based on hindsight without consideration of all the relevant factors, and often ignoring the impact that they had on the investment decisions that were made by the trustee at the time.

In the right circumstances mediators can perform a valuable role. But like in all litigation, not all parties and all cases are going to benefit from mediation. In some cases the parties just want to have their day in court.

back to news