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Trustee Act, Variation, Wills

Thank you, no thank you

Re W relates to the scenario of which movies are made where a relative leaves considerable wealth to a single individual. In this case the prior beneficiary of the deceased’s wealth was to be his sister, W’s mother. However, after the deceased became estranged from his sister, the deceased altered his will so as to leave his entire estate to W. W sought leave (granted) to file proceedings by way of originating application to seek orders pursuant to s 64 of the Trustee Act 1956 to:

  • give the trustee the power to make an in specie distribution of the deceased’s estate (rather than cash up the estate). This order was granted, and
  • confer power on the trustee, and direct him, to transfer all of the trust assets, including the properties to a trust settled by W for the benefit of herself and her wider family.

Section 64 of the Trustee Act 1956 provides that:

64 Power of court to authorise dealings with trust property
(1) Subject to any contrary intention expressed in the instrument (if any) creating the trust, where in the opinion of the court any sale, lease, mortgage, surrender, release, or other disposition, or any purchase, investment, acquisition, retention, expenditure, or other transaction is expedient in the management or administration of any property vested in a trustee, or would be in the best interests of the persons beneficially interested under the trust, but it is inexpedient or difficult or impracticable to effect the same without the assistance of the court, or the same cannot be effected by reason of the absence of any power for that purpose vested in the trustee by the trust instrument (if any) or by law, the court may by order confer upon the trustee, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions (if any) as the court may think fit, and may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne, and as to the incidence thereof between capital and income:


provided that, notwithstanding anything to the contrary in the instrument (if any) creating the trust, the court, in proceedings in which all trustees and persons who are or may be interested are parties or are represented or consent to the order, may make such an order and may give such directions as it thinks fit to the trustee in respect of the exercise of any power conferred by the order.

As noted at [21]

[21] Leaving aside the proviso for the moment, the Court may make an order pursuant to s 64(1):
(a) if no contrary provision appears in the instrument by which the trust has been settled; and
(b) what is proposed is a “sale, lease, mortgage … or other disposition, or a purchase, investment, acquisition, retention … or other transaction”; and
(c) such sale, lease etc is expedient in the management or administration of the trust property (defined as real or personal property) or would be in the best interests of the person(s) beneficially interested under the trust;2 and
(d) it is inexpedient or difficult or impracticable to effect the said sale, lease etc without the Court’s assistance or the same cannot be effected by reason of the absence of any power for that purpose vested in the trustee by the will or by law.

The concern of the Court was that in the event that the order sought constituted “… a dealing with trust property within the scope of s 21(b) above, the result would be contrary to R’s intention that his entire estate should go to W alone.” Peters J was of the view that the court’s powers under s 64(1) or under the proviso to that section “… do not extend to authorising a transaction that has the effect of re-writing the substantive trust or beneficial interests.”

Additionally, the court can only make an order under s 64(1) of satisfied that it is in the best interests of the beneficiary. The court was not satisfied that this was the case. Nor was the court satisfied that as to what adverse tax consequences might result or that the bright-line test would necessarily have application. As noted at [27] to [29]:

[27] In addition, the Court may only make an order under s 64(1) if it is in the best interests of the person(s) beneficially interested under the trust, that is W. The proposal will result in all trust property being transferred out of W’s sole entitlement, and permanently, when she is only 23 and can have no idea of how her life and career will develop. Of course, financial considerations are not the only matters to take into account. I accept a recipient of such an estate might wish to ensure his or her siblings are able to benefit; W has had several years to consider how she wishes to proceed; as a [graduate], W can be expected to understand the financial implications of what she proposes; and she says she has received legal advice (although she does not say independent legal advice). Ultimately, however, there can be no order under s 64(1) unless I am satisfied the proposed transaction is in W’s (current) best interests and I am not so satisfied for the reasons I have given.

[28] In counsel’s memoranda, it is said W wishes these assets to be transferred to Z Ltd and, absent a Court order, she will take a transfer of the assets and then transfer them herself to Z Ltd. Counsel submitted a Court order would avoid the disadvantages of this course, these being the cost of “double handling” the properties and an adverse tax consequence.

[29] That W will suffer additional cost if she takes these steps does not alter my decision. For what it is worth, however, the cost of transferring the assets to W and then to Z Ltd are trivial in the scheme of this estate, and there is no explanation in the information before me as to what adverse tax consequence will result. In the discussion on 8 June 2020, counsel advised the consequence is the application of the “bright line” tax rule, which applies on the sale of a property within five years of acquisition, and submitted I should not decline to make an order merely because an advantageous tax outcome will result (which I am not). Quite why the bright line rule should apply is unclear given a sale of inherited property is exempt from the rule but regardless the matters referred to in [25] and [27] preclude the making of the order sought.

Editor’s note: it is curious perhaps that no consideration was given as to whether Z’s object could have been achieved pursuant to the rule in Saunders v Vautier. See for example Beneficiaries rule.

References:

  • Re W [2020] NZHC 1292
  • Heylen v Keene [2018] NZHC 2203
  • Saunders v Vautier (1841) 4 Beav 115
  • Re Smith (deceased) [1975] 1 NZLR 495 (SC) at 497, ln 54
  • Banicevich v Gunson [2006] 2 NZLR 11 (CA) at [46] and [53]

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