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Beneficiaries, Beneficiary rights, Trustee retirement, Trustees

Broken hearts dysfunctional trusts

New Zealand, land of the long white cloud, lots and lots of sheep; and just about as many trusts.  What happens to jointly settled trusts when the settlors’ relationship has come to an end?  Well often, not much.  Literally.  The settlor/trustees cannot reach agreement on anything, the independent trustee (if there is one) is either taking sides or looking like a bunny caught in the headlights while trying not to do anything; and a whole lot of nothing is going on.

While all this is happening, or not happening, what of the beneficiaries?  What indeed.  The most common scenario I see in practice when a relationship ends is for the trust’s assets to be divided equally between the settlors.  Whether this is in the best interests of the other beneficiaries is rarely considered.  Often the motivation is practical – the trust owned the family home and already each settlor is only going to have “half a house” and so any further dissipation of the trust’s assets is problematic.

Regardless, those other beneficiaries are there.  And even if the trustees are not minded to consider their interests together with those of the settlors, the court is. 

Increasingly, when trusts are deadlocked, the matter is being taken to court with one settlor or the other seeking the removal of the other as trustee so that the “surviving” trustee can get on with matters, without the fetter of the former spouse or partner to block decisions. 

In some circumstances deeds of trust include provision for the settlors’ relationship ending and provide that the assets must be resettled 50/50 in the event of a relationship breakdown.  Whether such clauses are a fetter on trustee discretion, and whether appropriate in the context of assets being disposed of onto trust is a separate consideration.  However, the provisions can be practical – if the trustees act in accordance with the deed.  Where the trustees will not act in accordance with such clauses the court will order compliance (Broadbent v MacDonald).

In the context of deadlock other difficulties that must be addressed include provisions in the deed of trust specifying the number of trustees, requirements for independent trustees; and when relevant the cost if say a deadlock can only be broken by the appointment of the Public Trust as a trustee.

As a practical matter, s 51 of the Trustee Act provides that “whenever it is expedient” to do so, and it is “inexpedient, difficult, or impracticable so to do without the assistance of the Court” the court can make an order appointing a new trustee or new trustees, either in substitution for or in addition to any existing trustee or trustees. In doing so the court is not required to take the cost of a replacement trustee, say if the Public Trust is to be appointed, into account.  The court acting, in the best interests of the beneficiaries, not in the best interests of the trust fund.

Recent cases exploring the scope of the use of s 51 to replace deadlocked trustees who are mired in the remains of a relationship and fixed views regarding the future use of trust property make sobering reading.  Trusts are a staple in the fabric of modern life.  However, whenever a trust is settled new obligations and rights are brought into existence.  The settlors who gift assets to the trust lose the right to determine the future of those assets – this is correct and in accordance with trust law.  However, it is not always appreciated by those settlors who see the assets they settled onto a trust when future prospects were rosy, that in disposing of those assets to trust, those assets may be out of the reach of the settlor, when life takes a different turn to that which was planned.

Add the appointment of a stranger as trustee and the removal of the settlors and matters can become downright uncomfortable for the settlor trustees who suddenly find themselves beneficiaries and nothing further. 

The reality is that the modern trust is coming of age and it is important that settlors and trustees take note so that the expectations and understanding of all parties is clearer and more informed decisions can be made.  The most important decision sometimes being whether a trust should be settled at all.


  • Trustee Act 1956
  • Anderson v Anderson [2013] NZHC 1767
  • Sandford v Lambert [2012] NZHC 3487
  • Broadbent v MacDonald [2013] NZHC 1866


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