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

If you have a professional trustee, we recommend you find out what they can do to help keep the trust running smoothly without undue cost.

The recent changes to trust law – the Trusts Act 2019 took effect on 30 January 2021 – have placed additional responsibilities on trustees. An experienced professional trustee can advise the most time-and-cost-efficient way to ensure your trust is compliant and effective.



[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.



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