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Acknowledgement of Debt, Agreement for Sale and Purchase, Deed of Trust, Gifting, insolvency, trust, Trusts

Whose house is it?

The transfer of a family home to a trust is a relatively routine occurrence.  The general order of events is:

  • settle trust
  • execute agreement for sale and purchase
  • carry out any  gifting
  • get bank consent
  • register transfer

What happens if the last step does not occur? Has the sale in fact been effected?  Particularly in circumstances where the settlor / trustee / beneficiary continues to meet all mortgage outgoings, lives in the house, and meets all other related expenses?

Can the matter simply be rectified by later registering the transfer?  And where you might ask is the harm?  Well let’s say that between the original transfer to trust, and the subsequent transfer, the settlor suffers some solvency issues.  Whereupon the actual timing of the transfer may  take on some great significance.  Consider s 346 of the Property Law Act 2007:

346 Dispositions to which this subpart applies

(1) This subpart applies only to dispositions of property made after 31 December 2007—

(a) by a debtor to whom subsection (2) applies; and

(b) with intent to prejudice a creditor, or by way of gift, or without receiving reasonably equivalent value in exchange.

Consider also, the possibility of a spouse or partner moving into the property.  If the property is owned by a trust there might be no basis for a subsequent claim under the Property (Relationships) Act 1976 (PRA).   However, if the property remained in the ownership of the settlor / trustee, it might be arguable that the house remained in personal ownership and that there is a basis for a claim under the PRA.

The same questions also arise where a declaration of trust is made over a property but there is no contemporaneous transfer to the trustees.  While it might be argued that the settlor/trustee is holding the property as a bare trustee, in circumstances where the purchase price is progressively forgiven but there is no transfer to the trustees and no real exchange – has a transfer occurred?

In the case of Madsen-Ries v Thompson an earlier sale to trustees that was not registered was later disregarded (in circumstances where if disregarded a later sale had the effect of defeating creditors) as the court was not satisfied that there was any reason that explained the delay.  While that case turned on its own facts, it is worth keeping in mind when delaying the registration of the transfer of property to a trust, as the thief of time muddles memories and hides documents.

References:

  • Madsen-Ries v Thompson [2015] NZHC 3270
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