GRA Blogs

Articles by The Professional Trustee Team

Legal judgement affecting Trusts

AUTHOR: The Professional Trustee Team

POSTED: 10 September 2015

We all know trust law is a moving beast. The Court of Appeal recently demonstrated this when it released a judgement that had professional trustees using their little grey cells and thinking hard about their clients.

The case involved a fairly traditional marriage, of reasonably long duration and financial prosperity. Prior to the marriage the parties entered into a property relationship agreement. During the course of the marriage various trusts were created, some to hold assets and some to conduct business through. The marriage unfortunately came to an end and Mrs Z brought a claim against Mr Z seeking a share of the assets held in a trust.

Under this particular trust, Mr Z was the sole settlor, trustee and one of the beneficiaries. He also held the position of sole appointor.

The Court reviewed the terms of the trust deed and the administration of the trust which was woeful to say the least. Ultimately, the Court ruled in favour of Mrs Z. The judge concluded (amongst other matters) that the power to appoint and remove beneficiaries that Mr Z held, constituted property. The Court also ruled that if Mr Z exercised this power, he could remove all the beneficiaries of the trust so that he became the sole beneficiary. This would mean all the assets of the trust would effectively belong to Mr Z.

The question that I and several other professional trustees have been asking ourselves is would this case have been decided differently if a creditor had brought the claim against the trust as opposed to the spouse bringing proceedings?

Given the Court found a sole power of appointment of trustees and beneficiaries constitutes property, it doesn't seem a quantum leap to me that the Court might apply the same proposition in such an instance.

The lessons to take from this is trust deeds should be checked to verify they are correctly drafted and up to date and, given the latest Court judgment, to ensure they contain a prohibition on self-dealing.

As always, if you need assistance with your trust affairs, just contact GRA via our online form, at info@gra.co.nz, or telephone 09 522 7955.

Request a Meeting

The Professional Trustee Team

09 522-7955

info@gra.co.nz

© Gilligan Rowe & Associates LP

Did you like this article? Subscribe to our newsletter to receive tips, updates and useful information to help you protect your assets and grow your net worth. We're expert accountants providing expert advice to clients in NZ and around the world.

Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

Comments

Testimonials

Hi I received a copy of your Property 101 book as part of subscribing to the Property Investor magazine. Once I started reading I couldn’t put the book down. I have 4 investment properties (all based in Upper Hutt, Wellington) but never really understood the science of property investing. I am so much more informed now that I have read your book. After reading your book I will approach my next purchase differently and be a much more informed investor. The weblinks also provide great sources of information to follow up on and a property mentor will be someone I will definitely be seeking out. At the end of the book it included an offer for a discussion with GRA which I am keen to take up. Regards - GH - September 2015

We can help

Here's how

Investing in residential property?

Put this at the top of your reading list.

If you're investing in residential property, seeking to maximise your ability to succeed and minimise risk, then this is a 'must read'.

Matthew Gilligan provides a fresh look at residential property investment from an experienced investor’s viewpoint. Written in easy to understand language and including many case studies, Matthew explains the ins and outs of successful property investment.