Trust Busters

Trust Busters

By: MBC Law
December 22, 2016

When it comes to sheltering assets trusts have long been a “go to” and it is estimated there are currently between 300,000 to 500,000 trusts in New Zealand.

While trusts continue to be a useful tool for asset management and protection, we all need to be aware of the recent Supreme Court case of Clayton v Clayton which involved two decisions, each broadening the way trust property can become part of the relationship property pool.

The first decision involved a claim under the Family proceedings Act and the Supreme Court held that a successful claim under this Act should have features including a marriage, a nuptial settlement and some form of continuing provision for spouses in their spousal capacity.

The Supreme Court also let us in on the fact that a discretionary family trust will almost always constitute a nuptial settlement and a spouse does NOT necessarily need to be a beneficiary of the trust to succeed in a claim under this Act.

The second decision involved a declaration that trust powers were property for the purposes of the Property Relationships Act and so can be divided as relationship property can.

The Supreme Court made the “trust powers are property” declaration after finding that the trust powers in question were so unfettered that the power holder had the ability to negate his fiduciary duties to discretionary beneficiaries. He also had the ability to appoint the trust property to himself which would negate his fiduciary duty to final beneficiaries. Basically, he had the ability to opt out of his duties under the trust deed.

These decisions have created quite a stir and a number of claims have followed running similar arguments. Additionally, trust property can become part of the relationship property pool by way of a constructive trust claim and by an order under the Property Relationships Act to set aside a disposition.

Common Law has also introduced the ability of the Official Assignee to make a claim against a trust on behalf of your creditors.

For the first time in 60 years the Government is moving to update trust law by modernising and clarifying trustee duties, trust language and administrative procedures. The proposed changes are not intended to introduce fundamental changes but rather enhance the current law.

As usual, there are a number of grey areas but the biggest thing you need to know is that a trust deed is NEVER a one size fits all document. There are a number of aspects to consider and our team at MBC are dedicated to ensuring that your trust deed is tailored to you and has all the necessary protections in place.