Sometimes settlors of trusts change their mind. Generally it is too late at the point this happens, the deed is literally done. Assets have been transferred, debts forgiven and new relationships and obligations have come into existence.
However, what is the position where property is sold to a trust with a debt back, there is an expectation that the debt will be foregiven by the vendor either during their lifetime or in their will – but the vendor makes demand?
The simple answer might be that there is a debt owing and so the vendor is entitled. However, whether or not this is the case may not be as clear cut as might be thought. The decision in Hess v Hospenthal suggests that while that may be permissible, there are other matters to consider. The Court noting:
“ The plaintiff faces obvious hurdles in establishing a binding contract between the defendant and the trust. He may be on stronger ground in equity, on the basis of his claim that he entered into the arrangement in reliance on intended gifting and the legacy; given the obligations he undertook any change to the arrangements as originally understood is to his detriment.”.
The claim for summary judgment failed and a substantive hearing will be required to determine the matter. The fact that the court was not minded to make a summary judgment highlights the nuances that exist in family relationships and the need for clarity, certainty and care in asset and estate planning and the need to plan for deterioration in relationships.
- Hess v Hospenthal  NZHC 895
- Harris v Harris (1989) 6 FRNZ 1