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Beneficiary rights, Discretionary, Removal of trustees, Right to trust information, trust, Trustees, Trusts

Let the children be heard

Trusts and relationships can make for very poor bedfellows. The temptation to remove a former spouse or partner as trustee or beneficiary or to appoint or remove a professional presumed to favour one side over the other (whether or not this is the case) can be tempting. Similarly fraught can be involving children in the mix.

Where children beneficiaries are joined to matters involving family trusts, consideration needs to be given to costs and also whether the children’s interests can be met by the trustees. High Court Rule 4.23 recognises that there is no need to join beneficiaries to a proceeding where trustees represent those persons. However, as set out at [34] in Smith v Shaw “It follows that the threshold for joining parties as proceedings is set at a fairly low level.” In this case there was an unsuccessful application to remove children, who were final beneficiaries of a trust involved in the proceedings. Relevant considerations are set out at [35] in that case as follows:

“Trustees have fundamental duties to administer trusts in accordance with the trust deed, and to account to beneficiaries. It follows that final beneficiaries have an interest in proceedings that concern the administration of trusts to which they are beneficiaries. Trustees’ decisions will ultimately affect the assets that the final beneficiaries will at some point benefit from. In this case, the boys are the only two final beneficiaries of the Trust. This gives them a clear interest in the proceedings, one that goes beyond any interests that discretionary or other beneficiaries may be able to claim. Their presence will ensure the Court can make a final determination about the trustees with all relevant parties having the opportunity to be heard. In my view, Ms Allan’s submission that the trustees cannot be seen to be effectively representing the boys’ interests at the same time as effectively defending their position as trustees is a sound one. That the boys’ actual contribution to any issues that arise might be minimal does not affect their right to be joined as parties, nor does the fact that the boys will be served with documents that might expose them to the messier aspects of their parents’ relationship property dispute. Conversely, it is possible that their presence as parties may have the effect of ensuring the protagonists focus on the issues on the substantive application.”

Where children are joined to proceedings the issue of costs and how to manage these is an important practical consideration and the methodology set out in Smith v Shaw provides useful guidance.

Also see H v R where children aged 19 and 21 who were final beneficiaries of a family trust, sought to be joined to relationship property proceedings between their parents to oppose orders that the family home be sold, and the proceeds of sale be divided equally between the parents. In that case the children were joined as parties to the proceedings as their interests as final beneficiaries of the family trust, would be affected by the orders sought by their mother. As final beneficiaries the children had a contingent future interest in family trust’s assets, and the view of the Court was that the trustees (who included their mother) could not properly represent the children’s interests due to conflicting personal interests in the substantive proceeding.

Smith v Shaw also canvasses issues of settlement privilege in the context of determining whether a party to the proceedings can properly execute trustee duties. The view of the court was clear and as noted at [28]: “A cavalier approach to privilege cannot be countenanced. It is counter-productive.” The decision warrants careful reading.

References:

  • Smith v Shaw [2020] NZHC 1229
  • Smith v Shaw [2020] NZHC 238
  • Newhaven Waldorf Management v Allen [2015] NZCA 204
  • H v R [2017] NZFC 761
  • Johns v Johns [2004] 3 NZLR 202

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