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Beneficiaries, Trustee liability, Trustees, Trusts

Beneficiaries enforcing their rights

Beneficiaries are often disappointed in the actions and decisions of trustees.  Sometimes with cause, sometimes without.  However, few beneficiaries seek court assistance, despite their right to do so.  It is presumed that this is for reasons that include the difficulties in galvanising classes of beneficiaries to take action, the cost of doing so; and in many cases the failure to appreciate the rights of beneficiaries and the options to advance these.

Accordingly it is refreshing to see a group of beneficiaries successful in their claim of breaches of trust against the two trustees of a trust, one of whom was also a beneficiary.

The claims of breach in Tozer & Ors v Tozer and Bodewere couched as claims that:

  • the trustees failed to preserve the trust property, a residential property
  • the trustees failed to act impartially between beneficiaries, and
  • the beneficiary trustee profited from his trusteeship and misappropriated trust property

The facts can be summarised as follows:

  • trust was settled in 2003
  • the trust’s sole asset was a residential property sold to the trust with a debt back to the settlor
  • a substantial sum was borrowed two years later, and secured against the trust property and a trustee guarantee, to advance to a family company directed by the settlor and her son Bryce
  • Bryce and the family company indemnified the trustees for any loss arising from the guarantee
  • a further loan advance was obtained by the family company and advanced to a company controlled by Bryce and his wife
  • after the settlor’s death Bryce and retired solicitor Mr Bode were the trustees
  • the trust property was sold and the loans to the family company were repaid and the balance advanced to the settlor’s estate in part payment of the debt owing
  • the trustees did not honour the indemnity
  • the loan to Bryce’s company was not repaid

The beneficiaries calculated their loss at $200,000.  While it is a little difficult to see why the loss, as calculated in the judgment, was not greater; as a practical matter the court accepted the measure of loss and gave judgment in this amount against each trustee personally.  The beneficiaries were also awarded costs against the trustees.

Trustees can lose sight of the obligations owed to beneficiaries, and beneficiaries can be slow to exercise their rights.

For this reason, it is pleasing to see beneficiaries successfully standing up for their rights.

The case also highlights the need to carefully select trustees, especially when only one of a number of beneficiaries is a trustee.

References:

Tozer & Ors v Tozer and Bode [2014] NZHC 1759

 

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