Trust “busting” is a topic of enduring interest and has been a feature of the trust landscape as long as trusts have been recognised as a valid form of asset ownership. Jane Phare’s Trust busting: Is it the beginning of the end for hiding relationship property? is a case in point. However, it is important to look behind the rhetoric to the reasons and purposes of any trust.
A trust is a legally recognised relationship the characteristics of which are set out in section 13 of the Trusts Act 2019, which provides that:
Additionally, the Trusts Act sets out the essential requirements of a trust in section 15 (set out below). These criteria restated what has been referred to as the three certainties required to evidence a trust.
In a relationship property dispute, the dispute is essentially binary in that it reflects a disagreement regarding how property should be divided when a relationship ends. The difficulty when one or both parties are settlors, trustees or beneficiaries of trusts, whether or not settled by the parties; is that while trust relationships are also essentially binary, this binary relationship is between the trustees collectively and the beneficiaries collectively.
There are remedies under the Property (Relationships) Act 1976 that apply with respect to relationship property disposed of to a trust; and to interests with respect to trusts that fall within the wide definition of relationship property for the purposes of the Property (Relationships) Act. However, the practical reality is that the Property (Relationships) Act applies to property owned by relationship partners, which by definition as a general proposition cannot include trust property.
Rather than essentially calling for and “end to trusts” the message that needs to be conveyed is that there needs to be greater education and understanding and more honest discussion regarding the expectations parties to a relationship have. While easy to say writing from afar, where relationship parties don’t communicate regarding respective expectations, or don’t ensure the legal enforceability; problems will abound whether the assets are owned personally, in trust, in a partnership, in a company or otherwise.
Further, the role of trustees where trusts own assets that are utilised in a relationship may well warrant further scrutiny moving forward. In Vervoort v Forrest the Court of Appeal stated as follows:
In the absence of any over-arching trust/succession and relationship property legislation there will always be outcomes that do not appear fair or sometimes, moral. However, moving forward it is suggested that far greater scrutiny of the role trustees where trusts own assets utilised for the benefit of one or both parties to a relationship.
Much more will be written in this space. The takeaway message is that all trusts are not bad, all trusts are not good. Any trust must be fit for the purpose for which it is settled and the assets owned by that trust should be managed in accord with those purposes. Where assets owned would “but for the trust” be relationship property, trustees need to carefully consider the wisdom of the acquisition.
- Bethell v Bethell  NZHC 3171
- IP44 Review of the Property (Relationships) Act 1976: Preferred Approach – Te Arotake i te Property (Relationships) Act 1976: He Aronga i Mariu ai
- Da Silva v Da Silva  NZHC 2064
- Clayton v Clayton (Claymark Trust)  NZSC 30
- Kidd v Van den Brink  NZCA 16
- Kidd v Van den Brink HC Auckland CIV-2009-404-4694, 21 December 2009
- Judd v Hawkes Bay Trustee Company Limited  NZHC 3298
- Murrell v Hamilton  NZCA 377
- Hawkes Bay Trustee Company Limited v Judd  NZCA 397
- Lankow v Rose  1 NZLR 277
- Vervoot v Forrest  NZCA 375
- In the Marriage of Knight (1987) 90 FLR 313