Can be more important than you might think
Managing a family trust is not getting cheaper, nor is the paperwork and compliance being reduced. Trustees have legal duties, must give beneficiaries information and be accountable. It is tempting to think you can reduce costs by removing the independent trustee of your family trust. There can, unfortunately, be disadvantages.
The ‘do it yourself’ attitude
We all like to save time and money, but you do get what you pay for. Without an independent trustee, your family trust may not protect the trust’s assets as you may expect.
Cook Islands case
The Webb case[1] arose in the Cook Islands under New Zealand law. Mr Webb set up two trusts but, after he separated from his wife, the court ruled that the trusts did not prevent her claiming her half-share (as beneficiary) of the trusts’ assets. Mr Webb had retained such power over the trust property that he could access the assets himself any time.
The court said that if Mr Webb had needed agreement from a ‘truly independent person’ such as an independent trustee, the result would have been different. In 2021, the Privy Council[2] agreed with the New Zealand judges in the Cook Islands’ courts that Mr Webb had not really disposed of the property and Mrs Webb had a claim.
Clayton case
The Webb decision followed a New Zealand Supreme Court 2016 decision (Clayton case[3]). Mr Clayton had put commercial property into a trust. The court agreed Mrs Clayton could claim half of the trust assets as relationship property. This was because, although the assets were in a trust, Mr Clayton could get the property back any time he wanted.
These cases indicate the risks of not having an independent trustee who would counter the settlors’ wishes to treat trust property as their own. Trustees must hold the trust property for all the beneficiaries, not just the person who established the trust.
Advantages of having an independent trustee
There are other advantages in having an independent trustee, particularly a professional trustee. The trustee can:
- Advise about best practice
- Remind about important things such as when to give information to beneficiaries (and when not to)
- Help trustees meet other obligations, for example, retaining trust information as required by law
- Spot things that need to be reviewed, and
- Save cost if the trustee (if that person is the trust’s lawyer) drew up the trust deed and knows the family.
Talk with your trustee now
The recent changes to trust law – the Trusts Act 2019 took effect on 30 January 2021 – have placed additional responsibilities on trustees. Do talk with us about making sure your trust is run in not only the most time-and-cost-efficient manner, but also that your trust is compliant and effective.
If you would like to talk with our Trusts & Wealth Protection team about any of the topics in this article, please contact us here.
[1] Webb v Webb [2020] UKPC 22.
[2] The Privy Council in London is the body which hears appeals from Commonwealth countries that are too small to have their own top court.
[3] Clayton v Clayton [Vaughan Road Property Trust] [2016] 1 NZLR 551 (SC); [2016] NZSC 29.
DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of this firm. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source. Copyright, NZ LAW Limited, 2021.
Editor: Adrienne Olsen. E: adrienne@adroite.co.nz. M: 029 286 3650.
