Recent case law has shone a spotlight on the necessity for trustees to address the question of a trust’s proper purpose. Trust and Probate Litigation partner Emma Holland and associate Judith Swinhoe-Standen have written for the June 2024 edition of the International Family Offices Journal, sharing their practical perspectives as to how trustees should endeavour to address the proper purpose rule. As lawyers focusing on private wealth disputes, they do this with a view to avoiding potential litigation.

The article examines in particular the Judicial Committee of the Privy Council’s decision in Wong v Grand View Private Trust Company [2022] UKPC 47 (in which Stewarts acted for the successful appellant). It also considers the academic debate on various aspects of the proper purpose role, including suggestions that the concept should be discarded.

What is the proper purpose rule?

The proper purpose rule has been described as a “freestanding equitable principle that controls the exercise of powers” by trustees (per T Graham, D Russell and T McPhail in Trusts & Trustees Volume 30). Emma and Judith note that this is either as set out in the trust instrument or under wider trust laws, and that the rule’s intention is to ensure that trustees are exercising their fiduciary powers for the purpose(s) for which they have been conferred.

Other questions addressed in this article include:

• Is the proper purpose rule a new concept?
• What is the most recent position on proper purpose?
• Why does proper purpose matter?
• How does a trustee ascertain the proper purpose of the trust?
• Practically speaking, how should a trustee ascertain whether the exercise of a power is within the proper purpose of a trust?
• What are the key principles trustees should bear in mind in discussions with the settlor when a trust is being settled?
• Can the settlor change or update their wishes?
• How can trustees protect themselves?
• Are further changes on the horizon?

Emma and Judith provide practical advice on what protection is available for trustees, such as asking the court in advance of making a decision, seeking retrospective guidance or engaging a litigation lawyer to “stress-test” the trust file.

The International Family Offices Journal

The IFOJ is a practical information source co-published with STEP, the worldwide professional association for those advising families across generations. Each edition features articles from leading professionals whose work is relevant to family offices. The family office environment is of great interest to lawyers, accountants, trust companies, advisers in private banks and the financial world, as well as family office executives and wealthy families themselves.

Subscribers to the International Family Offices Journal can access the full latest edition including Emma and Judith’s article.