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File retention: trusts

6 October 2011

What are the issues?

  • The original trust deed and any deeds amending its provisions or appointing new trustees are held to the order of the trustees and must be stored safely.
  • Increasing trust litigation, particularly where trustees are exercising decision making powers mean proper record retention is essential.
  • Such cases often arise many years after the original trust was drawn up. Without adequate records you or your firm may not be able to defend its position.
  • It is also essential to know who owns the various original documents and papers, especially after the death of your client.

Legal status

This practice note is the Law Society's view of good practice in this area. It is not legal advice.

Practice notes are issued by the Law Society for the use and benefit of its members. They represent the Law Society's view of good practice in a particular area. They are not intended to be the only standard of good practice that solicitors can follow. You are not required to follow them, but doing so will make it easier to account to oversight bodies for your actions.

Practice notes are not legal advice, nor do they necessarily provide a defence to complaints of misconduct or of inadequate professional service. While care has been taken to ensure that they are accurate, up to date and useful, the Law Society will not accept any legal liability in relation to them.

For queries or comments on this practice note contact the Law Society's Practice Advice Service.

SRA Principles

There are ten mandatory principles which apply to all those the SRA regulates and to all aspects of practice. The principles can be found in the SRA Handbook.

The principles apply to solicitors or managers of authorised bodies who are practising from an office outside the UK. They also apply if you are a lawyer-controlled body practising from an office outside the UK.

Terminology

Must - A specific requirement in legislation or of a principle, rule, outcome or other mandatory provision in the SRA Handbook. You must comply, unless there are specific exemptions or defences provided for in relevant legislation or the SRA Handbook.

Should -
Outside of a regulatory context, good practice for most situations in the Law Society's view.
In the case of the SRA Handbook, an indicative behaviour or other non-mandatory provision (such as may be set out in notes or guidance).

These may not be the only means of complying with legislative or regulatory requirements and there may be situations where the suggested route is not the best possible route to meet the needs of your client. However, if you do not follow the suggested route, you should be able to justify to oversight bodies why the alternative approach you have taken is appropriate, either for your practice, or in the particular retainer.

May - A non-exhaustive list of options for meeting your obligations or running your practice. Which option you choose is determined by the profile of the individual practice, client or retainer. You may be required to justify why this was an appropriate option to oversight bodies.

The Law Society also provides a full glossary of other terms used throughout this practice note

1 Introduction

1.1 Who should read this practice note?

Managing partners, probate and trust practitioners and other practice staff involved in the preparation of trusts, trust administration and trust management.

1.2 What are the issues?

The original trust deed and any deeds amending its provisions or appointing new trustees are held to the order of the trustees and must be stored safely.

Increasing trust litigation, particularly where trustees are exercising decision making powers mean proper record retention is essential.

Such cases often arise many years after the original trust was drawn up. Without adequate records you or your firm may not be able to defend its position.

It is also essential to know who owns the various original documents and papers, especially after the death of your client.

2 Who owns the file?

Section 2 of this practice note is currently under review

The file belongs to the client, subject to a limited number of documents which can be removed and belong to you.

Documents which come into existence during the retainer fall into four broad categories:

  1. documents prepared by you for the client and which have been paid for by the client belong to the client;
  2. documents prepared for the firm's own benefit or protection for which the client has not been charged belong to the firm;
  3. documents and letters written by the client to you where property passes to you on despatch belong to the firm;
  4. documents prepared by a third party during the course of the retainer and paid for by the client belong to the client (see Cordery on Legal Services for more details).

3 Retaining trust documents

When considering retention of trust documents, trustees should bear in mind any potential claims that could be made as regards the trust; for example, against the trustees or anyone acting in a fiduciary capacity in relation to the trust, and against professionals in their dealings with the trust.

The two most likely claims are against the trustees for breach of trust, or, if the trustees are professionals, against the professional trustee in negligence.

3.1 Retaining original documents

Important documents which should be securely retained comprise:

  • the original trust deed;
  • originals of any supplemental deeds, such as deeds of appointment;
  • the original letter or memorandum of wishes;
  • all original paperwork completed by the settlor during creation of the trust including questionnaires, declarations and due diligence records.

Once the file has been created, it should normally be retained for the duration of the trust.

See 3.4 How long should the file be kept?

3.2 Destroying original documents

Original deeds and other papers which are not your property should not be destroyed without written permission from the client.

Before destroying documents, the trustee will want to ask him/herself when it is safe to assume all claims are time barred and therefore should be familiar with the limitation periods for potential actions in relation to the trust.

See 5 Limitation periods

3.2.1 If you cannot contact the client

If the client:

  • cannot be contacted; or
  • is unable to respond; or
  • unable to make a decision

you will have to make a risk assessment before destroying the file, including consideration of whether your insurer should be consulted.

3.3 Retaining supporting documents

You should also retain a working documents file containing additional information that would assist in any claims against the trustees.

In determining which papers may be important bear in mind that trust litigation and investigations may be commenced by:

  • incoming trustees;
  • beneficiaries – actual or potential;
  • HM Revenues and Customs;
  • third parties challenging the trust as a sham.

You should retain such papers necessary to counter any or all of these claimant's cases. This should include:

  • all receipts that beneficiaries have signed;
  • copies of any taxation or legal advice obtained before the trust was created or at any time thereafter;
  • all money laundering records;
  • detailed information on the beneficiaries which trustees may find useful in assisting them perform their duties or exercising their powers;
  • copies of any birth, marriage or death certificates;
  • investment records to show that proper advice and decision making has been exercised;
  • a copy of all Trustee Investment Policy documents;
  • annual trust accounts;
  • tax records, including confirmation that all income and capital taxes have been paid both as to income and capital, and an ongoing record of holdover claims.

You may also wish to retain:

  • minutes of all the trustees meetings, including trustees' resolutions to provide the evidence that trustees have actively managed the trusts and show their thinking in reaching decisions.

3.4 How long should files be kept?

There are three options you should consider:

  • storing the whole file and all other supporting documentation for as long as the trust is active;
  • reviewing the file and supporting documents so that only the most important material is kept;
  • keeping an abstract of important papers with the original trust deeds setting out significant matters.

If you decide to review the file, you will have to decide whether to review soon after the file is closed, or several years thereafter when the file destruction is imminent.

Reviewing the file soon after the end of the transaction is beneficial as relevant issues will be easier to recall.

3.4.1 Trust administration files

Trustees should retain papers until the end of the trust period plus six years.

3.4.2 Evidence of identity

The Money Laundering Regulations 2007 require that for 'relevant business', evidence of identity is to be retained for at least five years after the business relationship ends and for details of a transaction to be kept for a five year period from the date on which all activities taking place in the course of the transaction were completed.

Trust and probate work is relevant business for the purposes of the Money Laundering Regulations 2007.

For further information see the Law Society's anti-money laundering practice note in 7.1.1 Practice notes and 7.1.2 Legislation.

3.4.3 Documents relating to tax

HMRC can investigate for up to 12 years after an assessment. To be safe trustees should retain all tax papers for the period of 12 years after the end of the trust period.

3.4.4 Documents relating to VAT liability

The requirement under schedule 11, paragraph 6(3) of the Value Added Tax Act 1994 should also be taken into account. This says that records and papers relevant to VAT liability have to be kept for six years. See 7.1.2 Legislation.

3.5 Destroying supporting documents

Your retainer should confirm what will happen to trust papers. If your retainer is silent, you should contact your client and return any papers that you do not intend to retain.

If you destroy the file, you may decide to keep a note of the destruction, so the absence of papers can be explained at a later stage to show that the destruction was carried out in accordance with good business practice. Certain papers such as attendance notes and copy emails may later help to explain why certain actions were taken.

If you cannot contact the client see 3.2.1 If you cannot contact the client for information.

You should also consider the limitation periods (see 5. Limitation periods).

4 Storing files

4.1 Electronic storage

The same issues arise with electronic data as with other material, so you always need to consider limitation periods, ownership, confidentiality, privilege and make an adequate risk assessment prior to destruction.

4.1.1 Data protection

The Data Protection Act 1998 allows you to retain personal data stored in an office or information on file without breaching the Act for as long as necessary for one or more specified lawful purposes. See 7.1.2 Legislation.

Personal data contained within files in paper format are subject to the Act only if they are held in a relevant filing system (Durant v Financial Services Authority [2003] EWCA Civ 1746. See 7.1.2 Case law).

All personal data which are held in electronic format, including scanned documents which were formerly held in hard copy form, are subject to the Act.

For more information see the Law Society's practice note on Data protection in 7.1.1 Practice notes.

4.1.2 Data security

It is much easier to corrupt electronic data, whether by accident or design, than paper. Systems need to be in place to safeguard the authenticity, reliability, accessibility and security of all electronic material.

Email is both unreliable and an insecure medium. If necessary, encryption should be used to safeguard the confidentiality of information transmitted via email. Email should not be relied upon as a storage medium.

Information should be stored in a system, whether paper or electronic, which manages it according to its function and content, not its format.

For more information see the Law Society's practice note on Information security in 7.1.1 Practice notes.

4.1.3 Data Migration

It is a mistake to treat all data as though it were of equal value. Only business critical data or data of clear reference value should be migrated to new systems; the remainder should be destroyed according to an agreed retention and disposal policy prior to any migration occurring.

This is particularly important where personal data is concerned, since migration is a form of processing and should therefore not be undertaken if there is no longer any need to retain the data.

Migration of large quantities of data is additionally a costly process and can also result in loss or corruption of data elements. Before data is transferred to a new system, the firm should consider whether or not the data is likely to be corrupted by the migration process.

4.2 Charges for storage

Your retainer should set out any charges for storage and for copying the file or producing a document from storage.

You may wish to remind your client that there is a cost to your business for storage and retrieval of documents from deep storage, particularly where the material is kept off site.

4.3 Storing files on microfilm

You may need your client's permission if you wish to put records of documents they own on microfilm, and so it may be worth dealing with such questions in your retainer letter as a matter of routine.

4.4 Losing a file

Loss of a file may amount to inadequate professional service or negligence where deeds are lost. You may need to contact your insurer to record the loss and you should consider contacting your client to discuss what remedial action can be taken, especially if original trust papers have been lost.

If a claim arises in relation to lost papers the courts will weigh up the available evidence to assess your part in the matter.

5 Limitation periods

5.1 Breach of trust

A breach of trust claim must be brought within six years from accrual of the right of action, ie when the breach is committed (section 21(3) of the Limitation Act 1980. See 7.1.2 Legislation ).

The right of action does not accrue until the beneficiary's interest has vested. Therefore, if the complaining beneficiary is a remainderman, time does not start to run until the life interest terminates.

Accordingly, the very latest point that action could be taken against a trustee is likely to be six years from when the last beneficiary's interest vests or from the end of the trust period. In certain circumstances, this end-point is postponed, for example if there is deliberate concealment, fraud, or mistake whereby the breach could not with reasonable diligence be discovered even at the point of vesting or the end of the trust period. Also, time does not run against a trustee who remains in possession of trust property.

5.2 Negligence

A negligence claim must be brought within six years from accrual of the right action, ie when the damage occurs.

Where the beneficiary does not discover the damage until after the six year limitation period, he/she may rely on section 14A of the Limitation Act 1980 which allows a further three years from the date of knowledge (or presumed knowledge).

Limitation does not run against a discretionary beneficiary, as not having a proprietary beneficial interest (Armitage v Nurse [1998] Ch 241. See 7.1.3 Case law).

Section 14B of the Limitation Act 1980 provides that a negligence claim will be time-barred after 15 years from the date on which the act or omission constituting negligence occurred, even where the cause of action has not yet accrued.

Therefore the very latest point that action in negligence is likely to be taken against a professional involved with the trust is, as with breach of trust, six years from the date of vesting or from the end of the trust period (with the caveat that the claimant may be time-barred as a consequence of the longstop period set out in section 14B of the Limitation Act 1980).

Knowledge is likely to be assumed from the date of vesting or the end of the trust period (as appropriate), at that point the claimant is likely to have had the information necessary to have presumed knowledge.

5.3 When the limitation period may not protect you

The standard six year limitation period may not protect you in will related cases where, for example, undue influence is alleged, and note that in Humphreys v Humphreys [2004] EWHC 2201 (CH) a lifetime gift case, there was a successful challenge 13 years after the transaction. See 7.1.3 Case law.

Trustees should be aware of the circumstances where the end point could be postponed, as above in the case of concealment, fraud or mistake, but also in cases where a beneficiary is a minor or under a disability, in which case, time does not start to run until the beneficiary reaches a majority, or the disability ceases (s.28(1) of the Limitation Act 1980).

6 How does confidentiality and legal professional privilege apply?

6.1 Confidentiality

Information about the circumstances in which the trust was established is confidential to the settlor during his lifetime.

After the client's death, the right to confidentiality will pass to the client's personal representatives and it can only be waived by them. The personal representatives will also decide whether to disclose any information to beneficiaries.

An executor's powers derive from the will, where as an administrator's powers derive from the grant of representation. Accordingly, if the client died intestate, the administrator's authority to waive confidentiality will date from the issue of the grant.

6.2 Privilege

'Legal advice privilege' protects a client's communications to and from his lawyer made for the purpose of seeking legal advice or assistance.

Legal privilege belongs to the client, and only he/she can waive it. Privilege of the client passes to the personal representatives on death.

Privilege prevents any information being given to the beneficiaries during the settlor's lifetime unless the settlor waives privilege. On the death of the settlor the right to assert privilege passes to the settlor's successors in title who will be his personal representatives.

7 Further information

7.1 References

7.1.1 Practice notes

7.1.2 Legal and statutory regulations

7.1.3 Cases

7.2 Further products and support

7.2.1 Practice Advice Service

The Law Society provides support to solicitors on a wide range of areas of legal practice. The service is staffed by solicitors and can be contacted on 020 7320 5675 from 09:00 to 17:00 on weekdays.

Visit the Practice Advice Service website.

7.2.2 Law Society Consulting

If you require further support, Law Society Consulting can help. We offer expert and confidential support and guidance, including face-to-face consultancy on risk and compliance. Please contact us on 020 7316 5655, or email consulting@lawsociety.org.uk.

Find out more about our consultancy services

7.2.3 Professional Ethics Helpline

Contact the Solicitors Regulation Authority's Professional Ethics Helpline for advice on conduct issues.

7.2.4 Law Society publications

7.3 Acknowledgements

The Law Society acknowledges the contribution of the Wills and Equity committee in drafting this advice.

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