Money, power and family feuds - the anatomy of offshore trust disputes

Have you ever been served with a claim by a graveside? This horrifying (and true) anecdote during our Offshore Trust Disputes session at London International Disputes Week summed up everything that is different about this kind of dispute. Titled "Money, power and family feuds - the anatomy of offshore trust disputes", the panel looked in detail at how disputes emerge, and how they play out.

The roots of disharmony could exist in any family - whether it's a controlling parent, sibling rivalry, divorce or a second marriage (with or without stepchildren and half-siblings). But what tips that over into becoming a dispute? The trigger is often the death of a parent, or perhaps the unwillingness of the parent to talk about succession or retirement from the family business.

Settlors used often to be reluctant to discuss the existence of a trust with their children, and even now there is a tendency for many to regard the trust as "theirs" during their life, with distributions as tightly controlled as if they still owned the money. This can create tensions when the children are in their 40s (or older), have different needs, or can't stand one another. It's hard to keep feeding from the same trough as the whole of your family, especially if your parents are still holding the purse strings.

The fault lines are baked into many trusts from the outset. This starts with competitive legislators in jurisdictions vying to invent ever more elastic forms of trusts to attract settlors who are reluctant to cede control. Trusts draftsmen, too, may seek to give a settlor reserved powers or a degree of influence that gives trustees little scope to act without his approval. And the arcane language of trusts is, of course, not always obvious to clients, meaning that a settlor presented with a draft letter of wishes using common legalese phrases ("Without imposing any obligation on you, I ask you to...") may feel they are giving an instruction rather than making a request.

In some families, the trustee may be the first to sense the emergence of tensions, while in others - particularly where their relationship is primarily with the settlor - they may be stunned when the lawyers' letters start to arrive. Once a dispute emerges, the trustee may be able to keep hold of the reins and formulate the difficulties as an application for directions (a non-confrontational process, in principle at least), but in some cases the litigation will be hostile - an attack on something done, or not done, by the trustees, protector, settlor or others.

Many families in dispute may never have communicated properly, leaving frustrated children feeling unheard, so a notable driver for litigation can be their desire (as one panellist put it) for a man in a wig to tell them publicly that they are right.

How, then, do these disputes resolve? The factors which drive settlement in most forms of litigation - costs and publicity - are often missing from trust disputes. In directions applications, the costs of all parties are usually paid from the trust fund. If multiple beneficiaries are each separately represented, this can be ruinously expensive, but a beneficiary who isn't writing cheques for his own fees may be insulated from the financial impact of the dispute. And while in many jurisdictions there is a gradual move towards more 'open justice', it's still possible to have trust-related hearings in private in many jurisdictions, meaning that families also don't have to face the horror of having their dispute all over the front pages of the newspapers. The glare of publicity is often a considerable deterrent to pursuing litigation, but that may not be a risk for offshore trusts.

However, forward-thinking trustees are likely to suggest mediation as a means of resolving disputes before the parties become entrenched and the costs spiral, and most lawyers will do so too. It's not hard to see the advantages of mediation for family trust disputes, even beyond the obvious points about privacy and cost. Where litigation is often binary (win/lose), mediation can offer any outcome the parties are willing to agree. By agreeing the resolution themselves, a family may avoid the irreparable harm to their relationship that often comes from litigating to a conclusion. And it reduces the risk that, at the end of legal proceedings during which the trustee has seen the family at their worst, the family decide to move on from the dispute and remove the trustee. If the trustee is part of finding the solution, they may be able to keep the relationship.

There's another emerging reason why trustees and families should consider mediation before reaching for a claim form. There is a developing trend for courts in many jurisdictions to discourage trustees' applications for directions. In the past, courts have tended to be tolerant of requests to "bless" a decision (thereby exonerating the trustee, who can rely on the court order). Now, however, courts are becoming more likely to say that a professional trustee is paid to make decisions, including difficult ones, and the trustee must make their own decision. If they do so, there's a risk that a beneficiary who does not like that decision could challenge it, but that's hostile litigation (not an application for directions). The parties will pay their own costs and there's less prospect of private hearings, making mediation an attractive alternative.

Mediation is an emerging trend in many jurisdictions, and the UK's trend towards making mediation compulsory is not yet seen in most major trust jurisdictions or further afield. The panel heard fascinating insights from audience members from China, Poland and elsewhere suggesting that, while commercial mediation is becoming more normal, there are few if any mediations in family disputes.

It was an engaging and interesting discussion which I very much enjoyed chairing, and I look forward to picking up on these themes and any developments at LIDW 2025. Many thanks to Geoff Kertesz (Stewarts Law, London), Russell Clark (Carey Olsen, Guernsey) and Janice Callender (IQ-EQ, Jersey).