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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 [email protected], or telephone 09 522 7955.

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The Professional Trustee Team

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© Gilligan Rowe & Associates LP

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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.

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