This blog could be sub-titled “It’s a little late once the horse has bolted …”
As beneficiaries become increasingly aware of their rights, the question that some will ask from time to time is, “what can I do if I think that the trustees aren’t acting in my best interests, but there is no clear breach of trust yet? Do I have to wait until I can prove a breach of trust?”
This sort of situation is increasingly common where spouses or partners who have settled mirror trusts separate. Mirror trusts is the name given to trusts where commonly each spouse or partner settles a trust of which that person is a trustee, and has a power of appointment but is not a beneficiary. The idea behind mirror trusts was to separate ownership and benefit in a protective structure that would avoid estate duty. While many commentators did not believe the structures worked, given the abolition of Estate duty, the point is now somewhat moot. However, less moot is what happens when a relationship or marriage ends and substantial assets are in the hands of a trustee who may no longer have your best interests at heart.
Fortunately, such situations have been considered by the courts and as equity gives the court power to intervene to restrain apprehended breaches of the trust, trustees can be restrained from actions that might not be in a beneficiary’s best interests before there is any breach of trust. Obviously, it will be necessary to lay a foundation and present a case to substantiate the possibility. More than “they might” is required.
However, given the number of mirror trusts around, it is useful for potentially dis-affected beneficiaries to appreciate that it is possible to take action before a loss or disadvantage is realised.
Chatwin v Chatwin & Ors (1991) 1 NZTR 1-002