Our German Desk
A trust can be a hassle and expensive to maintain. So, it is not unusual for clients to reflect on whether a trust should be maintained.
When settlors, Bert and Diana Queenin, decided to wind up their family trust, they did not anticipate that their son, a trustee, would stand in their way. The Queenin[1] case shines a spotlight on the importance of all trustees being involved when considering options and any ultimate decision to wind-up a trust, but it also highlights the power of the settlors’ intentions under the Trusts Act 2019.
In Queenin the trustees were not in a habit of meeting regularly and when Bert and Diana looked to wind-up the trust, they pushed ahead with only limited discussion with their son Aaron who was their co-trustee and without any written advice on the merits or otherwise of the proposal.
Aaron questioned the decision of his parents to wind up the trust and requested meetings to discuss. Unfortunately, communication was poor, and the situation ended in a family dispute with the parents removing Aaron as a trustee and Aaron applying to the Court to question his removal.
The Judge felt that the whole situation could have been handled much better with proper family and trustee engagement:
…I consider the failure to initially engage with Aaron was a mistake. Aaron was a trustee and it was understandable for Aaron to feel somewhat put out when he was not informed about the detail of the proposed winding up. As much as anything, however, this appears to have occurred because there does not appear to have been a detailed proposal until the documents effecting the winding up were finally drafted by Mr Jury. It is also not surprising that Aaron felt that he was being effectively excluded from his role as a trustee when no one was prepared to discuss the detail of the winding up proposal but expected him to agree. It must have been even more of an affront to Aaron when, despite his requests to engage with Mr Jury over the trust’s winding-up proposal, he was threatened with removal as a trustee. There is no doubt that Aaron was not treated well, and these proceedings could well have been avoided had there been better communication between Bert, Diana and Aaron, or if either Mr Jury or Ms Auger had deigned to discuss the detail of the trust’s winding up proposal with Aaron and explain why Bert and Diana considered it was appropriate to wind up the trust.[2]
Despite these observations, the Court expressed the view that a proposal by settlors to wind-up a trust should generally be followed. Bert and Diana had settled all of the trust fund on the trust and they retained wide powers under the terms of the trust deed. In such circumstances a wind up and distribution of the trust fund back to the settlors in its entirety may be in order, and the Court’s comments endorsed such a step.
these wide powers given to Bert and Diana under the trust deed further provide further support that the trust’s purpose was to protect their assets for their own primary enjoyment, despite not being expressly listed as “primary beneficiaries”.
Accordingly, by making distributions to Bert and Diana, with the consent of all but one of the discretionary beneficiaries, and in line with what appears to be the original purpose of the trust as a vehicle to protect Bert and Diana’s assets for their own enjoyment during their life and for their children and grandchildren’s enjoyment after their passing, the trustees would seemingly have exercised their power to make final distributions and wind up the trust responsibly, in good faith and for proper purposes in accordance with their obligations under the Trusts Act.[3]
In Queenin, the Court was not determining the reasonableness of a decision to wind-up and distribute the trust as this step had been put on hold by the trustees. The issue at hand was the decision of Bert and Diana to remove Aaron as trustee.[4] Therefore, the Court’s comments as to wind-up are obiter (or observations) and are not binding.
The decision does however illustrate that settlor intention is a significant factor in determining the roadmap ahead for a trust. Section 21 of the Trusts Act 2019 sets out that a trustee must have regard to the context and objectives of the trust, and settlor intention is part of this matrix.
It is important to note, however, that despite expressing the view that a wind-up and distribution may be in order, the Court directed the trust was not to be wound-up without leave of the Court. Therefore, the Queenin Family Trust assets would remain in trust pending further order of the Court.
If you are thinking about winding-up a trust that you have settled, we are able to discuss the pros and cons with you and guide the trustees through the decision in a way which avoids family conflict. Please contact our Private Wealth Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
[1] Queenin v Queenin [2024] NZHC 1035
[2] Queenin, para [57].
[3] Queenin, para [72].
[4] The Court held that the removal of the trustee was in order.
