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Beneficiaries, Deed of Trust, Settlor; settlors, Settlors, Trustees, Trusts

Who is the settlor’s spouse?

A recent application for variation or rectification of the deeds of two mirror trusts highlights the need for careful consideration when drafting deeds of trust.  The deeds in question define the Final Beneficiaries to include the husband/wife (as relevant) of each settlor.  Some years later the husband and wife separated and their marriage was subsequently dissolved.  The trustees formed the view that the respective spouses were no longer beneficiaries and sought rectification or variation.

Declining the application, but making a declaration that each former spouse was (and remained) a beneficiary the court made the following observations:

  • the parties were married when the trusts were settled and there was no doubt as to who the respective spouses were
  • if future spouses were intended the terminology would refer to “any” spouse
  • the plain intention of the settlors that was evidenced in the deeds of trust was not defeated by the subsequent dissolution of marriage
  • on the proper construction of each deed, each former spouse was, and remains a beneficiary and so there is no basis for rectification or variation.

The decision highlights a temporal element of inerpretation that can be overlooked and the importance of the settlor’s intention as an interpretive touch stone in the context of a deed of trust.  The decision also highlights the need to consider the use of terminology such as “spouse” when drafting  deed of trust and when a direct reference to the spouse by name might be preferable.

When considering who a spouse is, it is also wise to consider other classes of beneficiaries and when it is more prudent to identify beneficiaries by name or by class, which will depend on the facts of each instruction.

Beneficiaries by name or by class

See Re Philip Rangitaawa Trust where the trustees successfully obtained an order for rectification of a trust deed to include one nephew mistakenly omitted from the trust deed.  While the Trustee Act 1956 does not provide for rectification, and it does provide the High Court with a  power of variation:  Trustee Act 1956, s 64A.   It was pursuant to this provision that the deed was varied to allow the rectification sought.  Dobson J noting:

“[11] Under s 64A of Act, the Court can approve a variation of a trust on behalf of any unborn or unknown person provided that the arrangement is not to his or her detriment. In determining whether an arrangement is detrimental, the Court:

… may have regard to all benefits which may accrue to the unknown or unborn person directly or indirectly in consequence of the arrangement, including the welfare and honour of the family to which the unknown or unborn person belongs.

[12] Using s 64A as an analogy for the present application, its purpose is to put the Court into the shoes of the minor and unborn beneficiaries of the trust who are incapable of assessing the variation…”

Dobson J then went onto note that:

[13] The question of whether a variation (as would result from rectification) is in the interests of the minor and unborn beneficiaries included in the trust deed requires a wide approach to the benefits and detriments of the variation. As Miller J stated in Graham v Butler:

It is not simply a matter of actuarial calculation. The arrangement must be considered as a whole. Indirect and intangible benefits and detriments are relevant, including the welfare and honour of the family. I observe that such considerations introduce a risk that the Court will be asked to authorise an arrangement that, while economic in nature, is economically disadvantageous to beneficiaries who are minors. As Cooke J cautioned in Re Smith [1975] 1 NZLR 495 at 500, appeals to family harmony could hardly carry the day against financial disadvantages. Minor or unborn beneficiaries on whose behalf the Court is asked to consent are scarcely likely to have contributed to any present disharmony. That said, it may be obvious that the existing trusts are likely to cause tension among reasonable people now or in the future, or that they are otherwise harmful to family welfare, and that may be taken into account. The question for the Court remains whether the arrangement is in the interests of the person on whose behalf the Court is asked to approve it. In reaching its decision the Court will examine the arrangement from the perspective of a beneficiary who is properly advised and reasonable.

References:

  • In the matter of the Springdale Farm No 1 Trust and the Springdale Farm No 2 Trust [2013] NZHC 2700
  • Re Philip Rangitaawa Trust [2014] NZHC 2571
  • Graham v Butler HC Wellington CIV-2003-485-167, 25 May 2004
  • Clarkson v Brady [2013] NZHC 437

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