TO CONSIDER, OR NOT TO CONSIDER – THE DISTRIBUTION OF TRUST ASSETS

Posted by Kellie Bright on October 28 2022 in News

Trustees now have guidance as to whether two types of factors can or should be taken into account when deciding whether to distribute trust assets.

The Court of Appeal in Kain v Public Trust [2021] NZCA 685 recently confirmed that a trustee may take into account:

• A settlor’s wishes after the trust was created; and
• If a beneficiary has received (or can expect to receive) a benefit from a separate but related trust.

These factors are briefly discussed below.

Settlor’s wishes

It is usual at the time of establishing a trust, for the settlor to set out his or her wishes and provide guidance to the trustees as to how the trust’s property is to be used.  The trustees are entitled to take into account a settlor’s wishes when exercising their powers, but are not required to do so. 

The question that has lingered is whether the trustees may have regard for the wishes of a settlor made after the trust is established.  The recent Court of Appeal has now addressed that question. It has held that

• A trustee is entitled to take into account wishes and subsequent wishes if they are consistent with the terms and purposes of the trust. 
• If the subsequent wishes are inconsistent with the original wishes, the trustee is entitled to use its discretion and give effect to the subsequent wishes despite the inconsistency.  This is a matter of discretion by a trustee.

Interrelated trusts

Often multiple trusts are connected to one family group.  In such circumstances, the beneficiary grouping of these related trusts is often similar or the same.

In Kain v Public Trust, the Court of Appeal confirmed the general principle of law that a trustee must take into account all relevant considerations and not take into account any irrelevant ones.  It then went one step further and held that a relevant consideration may be where a beneficiary of one trust has received (or can be expected to receive) from a related trust.  The Court did not hold that it is obligatory for a trustee to take into account entitlements and expectations of other related trusts. Rather that it is permissible for a trustee to do so.

If you wish to discuss matters relating to this article, your trust, or any trust matters in general, please get in touch.

Kellie Bright | Special Counsel | Kellie.Bright@shieffangland.co.nz