Variation on a theme

Re The Trustee Company, EF and GH is an anonymised decision of the High Court improving a variation to extend the vesting date for two trusts that will otherwise vest this year. The variation sought will also modernise the terms of the two trusts.

As set out at [11] “… AB and CD have spent most of their lives farming. They settled the Trusts likely for tax reasons, but JK is not able to explain why the Trusts were given a 40-year lifespan.”

The proposed deed of variation:

(a) extends the duration of the Trusts by amending the date of final appropriation to 80 years from the date on which it was settled rather than the existing 40 years;
(b) removes spouses of the Children and grandchildren as beneficiaries;
(c) stipulates the priorities of the beneficiaries;
(d) includes updated references and definitions;
(e) amends various typographical errors and updates wording;
(f) modernises the independent trustee requirements, and the trustee retirement and appointment provisions;
(g) includes a power to vary the trust deeds; and
(h) comprehensively updates the trust deeds to reflect modern drafting practices and the Trusts Act.

Legal principles

As set out by McQueen J at [31] to [35]:
[31] Sections 122–125 of the Trusts Act reflect the statutory extension of the rule in Saunders v Vautier.1 Section 122 permits the trustees and beneficiaries of a trust to unanimously agree to the variation or a settlement of a trust on such terms they see fit.
[32] Section 124 allows the Court to provide consent on behalf of those beneficiaries who are unable to consent due to their minority, incapacity or not yet having been ascertained.
[33] Section 125 allows the Court to waive the requirement that any particular beneficiary or class of beneficiaries consent to a proposed variation.
[34] The factors that must be considered under ss 124(4) and 125(3) are common. When considering whether to approve on behalf of, or waive the consent of, a beneficiary or class of beneficiaries, the Court must take into account:

(a) the nature of any person’s interest in the trust property and the effect of the proposed order on that interest;

(b) the benefit or detriment that may result to any person with an interest in the trust property, if the Court makes or refuses to make the proposed order; and

(c) the intentions of the settlor of the trust in settling the trust, if it is practicable to ascertain those intentions.

[35] In Gavin v Gavin, Mander J summarised the principles relevant to the exercise of the Court’s powers under s 124 as follows:

(a) The power to approve a variation is discretionary.
(b) The court may, on behalf of any beneficiary described in s 124(2) who has an interest in the property of a trust, consider any proposal to terminate, vary or resettle a trust.
(c) The court’s discretion is to be exercised with reference to the factors identified in s 124(4), including the intentions of the settlor, to the extent these can be ascertained.
(d) The court can approve a scheme which conflicts with the intentions of the settlor but should not do so lightly.
(e) The court considers the trust provisions afresh if circumstances have arisen which were not foreseen or may not have been foreseeable at the time the trust was established.
(f) The court is able to approve an arrangement to the detriment of any person on whose behalf the Court is giving consent, provided the effect of the orders would not reduce or remove a vested interest in the trust property.
(g) The Court is to take a wide approach to benefits and detriments and arrangements and must consider the arrangements as a whole in a practical and business-like way. Indirect and intangible benefits and detriments are relevant, including the welfare and honour of the family.
(h) Difficulties may be met by amendments to the proposal or covenants by persons benefitting to make good losses to the disadvantage of other beneficiaries.
(i) An order approving a proposed variation may be conditional.

The court was asked to waive consent on behalf of one adult grandchild due to that beneficiary’s mental health and the concern that seeking his consent would “unnecessarily raise false expectations.”

As noted at [26]:

PQ’s personal problems are not a matter of his choosing. The Trustees are concerned PQ may suffer undue hardship or his mental health may be detrimentally affected if identifying details of this application are published. For this reason, the Trustees seek a direction that the judgment be anonymised in relation to PQ, the Trusts, the Trustees and family members before it is made public.

If approved the variation would disadvantage current and future spouses. As all existing spouses consented to the variation, consent was only required on behalf of potential future spouses. In this regard is was noted at [49] that:
[49]
The Trustees consider the removal of spouses as a class of beneficiaries would be in the best interests of the wider family. They say there are increasing risks of relationship property litigation in the trusts space and if the beneficiary list is limited to the immediate family, it could save the Trusts time and cost associated with such litigation. They say it may also make things easier for the descendants of AB and CD (and their future spouses) if that is reduced as a potential risk-factor in their relationship. On balance, the Trustees consider this is a significant benefit to the family, outweighing any detriment to future spouses. Once again, the situation is that if no action is taken, the Trusts will both vest by default in the Children in August 2025 and future spouses would not be beneficiaries in any event.
[50]
The Court has approved variations for the purpose of protecting against the increased risk of relationship property claims from spouses or partners.7 This Court has acknowledged that:8
…modern practice is to exclude spouses and partners from inter-generational family trusts to ensure the assets are protected for lineal descendants and not vulnerable to relationship property claims…
[51]
I agree with counsel’s submission that the willingness of all existing spouses to consent to the deed of variation is of some comfort. In addition, any future spouses can have no reasonable complaint later on that they have been removed.

References

• Re The Trustee Company, EF and GH [2025] NZHC 653
• Trusts Act 2019, ss 122 to 125
• Re Macalister [2021] NZHC 3572
• Gavin v Gavin [2021] NZHC 550