Mackie Law independent Trustee Limited v Chaplow provides a useful consideration as to how closely trustees should follow a memorandum of wishes.
The trust in question was settled by Mr Munro who wrote the memorandum of wishes referred to shortly before his death.
The primary beneficiary of the trust following Mr Munro’s death, was his daughter. Difficulties arose after Mr Munro’s death over the trustees adherence to the wishes, which included a direction that Mr Munro’s partner live in the trust property for 3 months after his death (notwithstanding that she was not a beneficiary). The memorandum also gave guidance regarding provision for Ms Chaplow. Relations between Ms Chaplow and the trustees deteriorated over the terms of a proposed resettlement and the trustees’ fees. The background issue was the trustees’ adherence to the memorandum of wishes. As noted at , the trustees were entitled to consider the memorandum as part of their decision making process and could elect to adhere to it provided that it did not conflict with the trust deed. However, they were wrong to consider themselves bound to follow the memorandum. The court noted the frequent references to the memorandum in correspondence but no minutes or resolutions other than one to follow the memorandum. It was also noted that there was no reference to the trust deed.
In adhering to the memorandum in the face of Ms Chaplow’s express disagreement the trustees were in breach of their obligations under the deed of trust.
This became relevant in the context of fees as trustees can only be reimbursed for expenses properly incurred. The onus lies on the trustees to demonstrate the extent to which fees are properly incurred. A trustee may be honest and yet incur wholly unjustifiable fees – for example out if an excess of caution: Re Chapman
The court considered all of the fees charged and found most not to be recoverable from the trust. As noted the matter should have resulted in a straightforward resettlement. While the trustees could seek to be indemnified for any liability in respect of unauthorised works carried out by Ms Chaplow they were not entitled to an indemnity for any failure to follow the memorandum of wishes. Nor were they entitled to the fees that resulted from what the court found to be the trustees protecting their own position.
An application for the trustees to be removed was considered and the required grounds made out. However, given the likely resettlement onto another trust, the court proposed a pragmatic solution and suggested the appointment of the trustees of the trust that was anticipated to receive the Trust’s asset’s by way of resettlement.
The take home messages from this decision are:
- Memoranda of wishes can be followed provided that they are in accord with the deed of trust and the trustees decide that to do so independently of the memorandum
- Trustees cannot presume every cost is reimbursable. Properly incurred expenses can be met through using trust property as security for borrowings. However, work that is not required in the execution of the trust cannot generally be met from the trust.
- Mackie Law independent Trustee Limited v Chaplow  NZHC 1570
- Re Chapman (1985) 72 LT 67
- Re Chambers Settlement (1900) 3 GLR 19
- Trustee Act 1956, s 21