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Beneficiaries, Beneficiary rights, Cases, Relationship Property, Removal of trustees, s. 182, Trustee Act, Trustees

Setting a trust up to fail

Trusts, like relationships, are often settled when the future seems rosy and the possibilities are endless.  When the relationship dream comes to an end, all too often so does the dreams the settlors had regarding the trust and the trust property.  The difficulty where parties cannot make their own decisions, as painful as they may be, as that there is nowhere left to turn but the court.  Given New Zealanders’ abiding love affair with trusts, commonly the end of a realationship will either bring about the end of the jointly settled trust, or at the very least, some significant rearrangment.  This is for two primary reasons: the first is that the trust related provisions of the Property (Relationships) Act 1976 may effectively require this, the second is that settlors all too often do not really intend that the property settled on or acquired by the trustees be genuinely for the beneficiaries.  This is not averring to sham or alter ego or illussory trusts – the reality is settlors often expect to be able to continue to benefit personally from all of the trust’s assets regardless of the dispositions to the trust.

So what when the former lovers can no longer agree what should be done as trustees?  This is where the lead in to this blog features – more needs to be done when settling a trust to consider the possibility of a relationship failure and how the trustees will address this.  Decisions made more dispassionately when there still is some passion may well assist in later resolution.  While applications can be made for the removal of trustees when the parties with the releant powers cannot or will not exercise them – the courts cannot be relied upon to rubber stamp the imposition of a new trustee who may or may not be able to advance matters any better than the parties themselves due to the interposed relationship property issues.  In the oral decision of Chisholm J in the matter of the RHO and EA Williams Family Trust he notes at the conclusion of his judgment (where he denied a request to replace the husband and wife and related party trustees with the Public Trust as he did not believe that the Public Trust could necessarily advance matters given he relationship issues) that:

“[21] I should perhaps add one final word.  The small exposure I have had to this matter illustrates that it is capable of generating a good deal of cost to both parties by way of legal fees.  I am sorry that Mrs Williams is not here to hear this from my lips.  It will take two parties to solve relationship property issues.  If they fail their children are likely to be worsse off, both financially and emotionally…”

While the issues in the case stemmed from the relationship failure, the design of the trust, as so often is the case meant that a deadlock soon arose.  Trust property was then being utlised for the sole benefit of a single beneficiary while other beneficiaries who needed support from the trust were not able to be assisted.

Careful care is required settling a trust to consider the future options and how they might be addressed.

References:

RHO and EA Williams Family Trust CIV 2006 409 002948 9 May 2007,

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