Re Jury Family Trusts [2022] NZHC 568

This decision of the High Court illustrates the way the Court can assist to rectify trust problems that, if left unattended, would lead to a costly and perverse outcome.

Two mirror trusts were established but had a life of only 30 years. The limited life of the trusts was apparently chosen on legal advice but its rationale was lost in time. The trusts were due to vest on 31 March 2022 but, were that to happen, both would suffer a taxation charge in the order of $160,000. Moreover the Court was told that if changes were not made to prolong the life of the trusts, the two settlors would simply establish new trusts with a longer life as now permitted. They wished the trusts to continue so that their business assets could be protected within them.

The Court appointed counsel to assist, from whom suggestions for the amendment of the trusts were received, to supplement the applications made by each of the settlors. As a result the Court ordered amendments to the trusts that:

1. Extended the vesting day of the trusts to 80 years from the date they were established.
2. Altered the way capital and income could be applied to discretionary beneficiaries.
3. Included the survivor of the settlors as a discretionary beneficiary of their trust.
4. Allowed a settlor to benefit.
5. Streamlined the final beneficiaries to take account of the longer life of the trusts.

All but one of the necessary consents were sought and obtained. but applications were required despite the consents. The first related to minor beneficiaries, on whom the impact of the proposed changes fell for the most part. Because of the evidence that the settlors would establish new trusts with longer lives, the chance of minor beneficiaries receiving anything in the proximate vesting of the trusts was negligible.

Against this, the whole family would be disadvantaged by the tax liabilities that would be triggered by vesting and by the assets falling out of trust protection. The trusts were accepted by the Court as having been established to provide asset protection and to eventually deliver assets to the settlors’ children. Neither of these objectives would be fulfilled by early vesting. Moreover the trusts were flawed in that they did not allow the settlors to participate in trust capital.

The position of minor and unborn beneficiaries was considered under section 124 of the Trusts Act 2019 (“TA”). The principles from that section allowed the Court to:

1. Consider the Trusts afresh in the light of unforeseen circumstances;
2. Approve a detrimental arrangement as long as no vested interest was adversely affected; and
3. Consider the suggested arrangements in a practical and business-like way, taking due account of intangible benefits and detriments such as the welfare and honour of the family.

Applying these principles, consent was given on behalf of minor and unborn beneficiaries.

A waiver of one beneficiary consent to the changes was sought under section 125 of the TA, in respect of the estranged husband of one of the settlor’s daughters, both of whom had consented. Because he was an adult the Court could not consent on his behalf. Waiver was the only available course. The Court examined the (remote) circumstances in which he might benefit under the present terms of the trusts. He and his wife had settled their property interests and intended to end their marriage. The remoteness of his involvement with the trust led to the Court waiving the need for his consent.

The Court’s orders were made in the nick of time, just 7 days before the imminent vesting day.

© G D Clews