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The Future of Trust Law is Simpler

26 July 2019

Trust law in New Zealand, as it stands today, can be a complicated area to fully understand, and many aspects are based on court rulings in individual cases. For instance, the Trustee Act 1956 doesn’t address the circumstances under which beneficiaries should be able to revoke, vary or resettle a trust, and the rules exist only in the common law.

The rule in Saunders v Vautier 1841) 41 ER 482 is a well-established part of Trust law in New Zealand. The rule provides that where all the beneficiaries of a trust are adults with full legal competence and are in agreement, they can act together to require the trustees to terminate the trust and transfer the trust property to them to distribute as they see fit.

This rule recognises that, while the Trustees hold title over the Trust’s assets and are responsible for their ongoing management, the beneficial ownership lies with the beneficiaries.

Since it was established, the rule has been widened, and the High Court has permitted beneficiaries to appeal the rule to vary trusts, and expand the powers available to the Trustees.

As commented by Justice Baragwanath in Re Philips New Zealand Ltd; [the Beneficiaries] power to put an end to the trust is the ultimate exercise of unanimous consent. Since they can together use their possession of the total bundle of proprietary rights to terminate the trust, it’s hard to see why they can’t use the same rights to permit the trustees to modify it.

The reason is, those with the absolute beneficial interest in the Trust’s assets should be entitled to decide how they wish to enjoy them. In circumstances where a Trust is being modified, but not being terminated, then consent from the Trustees will be needed.

While the case law rules around Trusts law can be easy for lawyers to follow, they are not always known or understood by lay people involved with trusts. Many people would be surprised to learn that the current law allows beneficiaries to vary or revoke a trust, without necessarily requiring the involvement of the court to do so.

The new Trusts Bill, which is currently before Parliament, will replace both the Trustee Act 1956 and the Perpetuities Act 1964. The aim of the new law is to make trust law more accessible to laypersons who are involved with Trusts, and to make core trust principles and essential obligations easier to understand (as an aside, the Trusts Bill will effectively codify the Rule in Saunders v Vautier, along with many other existing case law principles).

While the Trusts Bill seems to have fallen off the Government’s radar in the past 18 months, when it is finally passed into law, Beneficiaries and Trustees will be able to review a single piece of legislation (rather than a plethora of case law) to properly understand their rights and obligations.

 

Glenda Graham is a Partner in the Private Client Team at Norris Ward McKinnon. You can contact Glenda at glenda.graham@nwm.co.nz

Glenda Graham