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Beneficiaries, Beneficiary rights, General, Trusts, Variation

Good old fashioned law

Family trusts can generally run for up to 80 years.  That puts quite an onus on the settlor to get it right.  It also means that where beneficiaries are defined by reference to children and grandchildren there can be a significant number of  beneficiaries over time.

Jones & Ors as Trustees v Collings & Ors there were 61 sui juris beneficiaries at the time an application for variation was made; as well as 2 minor beneficiaries and the potential for further as yet unborn beneficiaries.

The matter for consideration was a simple one. The trustees wished to vest and terminate the Trust where the classes of beneficiary were closed.

The applicable law was the rule in Saunders v Vautier and s 64A of the Trustee Act.  Pursuant to the rule in Saunders v Vautier the beneficiaries of a trust can (if all are of age and consent (and have capacity to do so) bring a trust to an end.  However, the rule in  Saunders v Vautier cannot be used to change the terms of a trust without the trustees’ consent (Re Brockbank, Stephenson v Barclays Bank).  Section 64A of the Trustee Act provides for the court to consent on behalf of minor and unborn children.  However, as a practical matter the section cannot be used if there are beneficiaries of age who do not consent.  Re Estate of Byrne provides a comprehensive assessment of the scope of s 64A and points arising from that assessment as noted at [32] in Jones & Ors as Trustees v Collings & Ors include:

(a) The Court’s role under the section is not to make orders varying or revoking trusts but to approve the arrangement on behalf of those not legally able to do so for themselves by standing in the shoes of the beneficiary on whose behalf it is acting.

(b) “Revoking any trusts” can encompass both the termination of the existing trusts and the revocation of the existing trusts and their substitution by new trusts.7

(c) The arrangement may be proposed by whoever brings the matter to court. The arrangement is commonly proposed by the trustee or trustees but it is not limited to them.

and together absolutely entitled to the trust property, have the right to defeat the settlor’s intention by varying or revoking the trust.8 The Court’s jurisdiction is a statutory extension to that rule.9

(e) The Court may therefore approve an arrangement that is contrary to an express prohibition in the will or trust deed. It would not do so lightly, but the Court approaches the matter from the perspective of those on whose behalf it is giving consent. It does not stand in for the settlor or testator.

(f) The Court has a very wide discretion, but it is exercised in the interests of the person or class on whose behalf it is asked to consent. The Court should ask whether the person on whose behalf it is consenting would, if of full capacity and properly advised, have been likely to have approved the arrangement on their own behalf, except the Court may not consent to an arrangement that is detrimental to that person. (The Court declined to follow Re Bryant10 where the Court stated that it is entitled to look at the arrangement as a whole, and not merely at the limited interest of the beneficiary on whose behalf the Court has a duty to consider it).

(g) The Court adopts the perspective of a properly advised and reasonable beneficiary and takes a wide approach to the benefits and detriments of an arrangement as a whole, including indirect and intangible benefits and detriments. It is then necessary for the Court to weigh up the competing detriments and benefits accruing to the person on whose behalf the Court is considering the matter.

  • (h) The arrangement is approached by the Court in a practical and business-like way including taking into account the total advantages that the various parties will obtain and their bargaining strength. It follows that the Court’s inquiry does not end once it is shown that the arrangement is not detrimental to minor and unborn beneficiaries. The Court has to also consider whether the arrangement adequately reflects the strength of their bargaining position.

Jones & Ors as Trustees v Collings & Ors also usefully considers the application of the Perpetuities Act, the Status of Children Act, the Adoption Act and the Legitimation Act to determine the identity of all the beneficiaries (current and future).  it is useful from a drafting perspective to understand how classes of beneficiaries might result when fully constituted with the passage of time and drafters of trust deeds would be wise to consider who might comprise the members of a class of beneficiaries over time.

The result in this case being that “beneficiaries” who were not born to married parents, and did not have their birth later legitimatised, were not to be included as beneficiaries as to do so would have the effect of re-writing the trust deed.  This approach while perhaps “old-fashioned” is appropriate given that to do otherwise would ride rough shod over the settlor’s stated wishes.

Jones & Ors as Trustees v Collings & Ors also somewhat usefully considers the parameters of “remoter issue” and “issue” at [66]  to [76] stating that:

  • “remoter issue” refers not just to the children of the grandchildren but include further generations among the possible beneficiaries
  • “issue” generally means descendants and is not limited to children.

 

 

 

The  practical issue Hinton J had  with the proposal in Jones & Ors as Trustees v Collings & Ors  given her views as to the greater range of potential unborn beneficiaries, is that “distributions may be made to people who die before the date of distribution in terms of the deed. That could disadvantage their descendants, if they die leaving descendants, or disadvantage people in the ongoing trust if the recipient of the distribution dies leaving no living descendants, because the ongoing trust fund should have been larger.”  This issue was resolved conceptually through the requirement of a satisfactory life insurance policy being taken out to cover any loss to unborn beneficiaries.

The terms issue and remoter issue are widely used, but perhaps the consequences of the terms not always fully appreciated in determining the class of beneficiaries of a trust deed.

 

References:

  • Jones & Ors as Trustees v Collings & Ors [2015] NZHC 3002
  • Saunders v Vautier
  • Trustee Act 1956
  • Re Brockbank [1948] Ch 206
  • Stephenson v Barclays Bank [1975] 1 All ER 625
  • Re Estate of Byrne HC Wellington CIV-2003-485-167, 25 May 2004
  • Adoption Act 1955
  • Perpetuities Act 1964
  • Status of Children Act 1969
  • Legitimation Act 1939
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