Termination of testamentary trust

Testamentary trusts arise in many circumstances and for many reasons. In Castle Trustees Limited the deceased provided for the residue of his estate to provide income for his children throughout their lives with a 1/4 share of the total residuary estate being distributed in equal shares to the grandchildren following the death of each child. Accordingly, the testamentary trust would terminate on the death of the last of the deceased’s children. However, with the passage of time, the beneficiaries’ wanted the certainty of an immediate payment on the basis set out in [7]:

[7] Adam’s surviving children and the nine grandchildren now wish to terminate the trust and divide the remaining residuary estate into twelve equal shares. They no longer wish to meet the fees associated with the trust, and have decided, among themselves, that it would be in everyone’s interests if they were to share the residuary estate now. Adam’s three daughters, who are aged in their 60s, are content to take a discount on the value of their remaining life interest. The grandchildren, who are aged between 30 and 42, will receive the certainty of an immediate lump sum payment.

But for the fact that the testamentary trust provided for substitution of grandchildren by great grandchildren, which the Court considered was an unlikely possibility, the children and grandchildren could have terminated the testamentary trust pursuant to section 121 of the Trusts Act 2019

A pragmatic approach was taken on the basis that as set out at [12]:

“… The the interests of the great-grandchildren will be adequately protected by service on the grandchildren. I can foresee no situation in which the (slightly) divergent interests as between grandchildren and great-grandchildren will cause the Court to approach the question of termination and
distribution differently.“

As noted at [15]:

[15] In Re Davies, Grau J was faced with a similar situation, albeit in the case of a family trust which was far less harmonious than Adam’s testamentary trust. Justice Grau was asked to approve a settlement under s 124 on behalf of minor and unborn discretionary beneficiaries. In that case, as in this one, the settlors intended the discretionary beneficiaries would benefit only if an older beneficiary died before distribution. Justice Grau noted the interests of the minor or unborn discretionary beneficiaries could “be protected through their parent’s or grandparent’s share”.

The Court was agreeable to providing consent on behalf of the minor and unborn beneficiaries pursuant to section 124 of the Trusts Act and did not require the appointment of counsel to represent their interests.

As a practical observation, care is required to consider the interests of minor, unknown and unborn beneficiaries when seeking the assistance of the court regarding termination, resettlement or variation as the pragmatism evidenced in Castle Trustees Limited must be considered on a case by case basis. For the position where the appointment of counsel to represent minor, unknown and unborn beneficiaries see Gavin v Gavin. Also see the position adopted in Ruby v Ruby.

References:

• Re Davies [2024] NZHC 2998
• Castle Trustees Limited [2024] NZHC 3950
• Trusts Act 2019, s 121; s124
• Gavin v Gavin [2021] NZHC 550
• Ruby v Ruby [2022] NZHC 282