05.02.2024

Variations of Trust: Court’s Position Confirmed

Last year we published an article titled Variations of Trust: Obtaining the Court’s Blessing on the High Court decision in Re Jury Family Trusts [2022] NZHC 568 (Re Jury).

In Re Jury, the High Court used its discretionary power under the Trusts Act 2019 (Act) to grant the applicants the power to make several variations to the trust deeds of two mirror trusts in light of the tax liability and potential creditor exposure that would have arisen if the trusts had vested.

Recently, in Re Peers [2023] NZHC 2120 (Re Peers), the High Court solidified its position regarding the variation of trusts distribution dates in light of potential tax consequences.

Background

In Re Peers, the Onslow Trust (Trust), described as a traditional New Zealand family trust, was settled by Warwick Peers to benefit his family members, being the applicants and their two children.  The Trust had a 32 year life span and was due to vest on 22 November 2024. 

The Trust was in partnership with another trust which dictated that if either of the trusts vested then the partnership would cease.

According to tax advice, if the Trust vested on 22 November 2024 and the partnership ceased, the Trust would suffer a potential tax liability of $252,665.  This is notably higher than the tax liability of $160,000 the trust in Re Jury was faced with.

High Court Decision

Although all adult beneficiaries of the Trust requested and consented to the variation of the vesting date, satisfying section 122(2) of the Act, the trust deed included a further provision that if either of the applicant’s children were to die on or before the vesting date leaving a child or children, then those children would, per stirpes, receive their parents’ share of the trust fund (Unborn Grandchildren).  Accordingly, under section 124(2)(c) of the Act there existed “a future person who may acquire a beneficial interest” in the Trust.

As discussed in our previous article, the Act empowers the Court to consent to a variation of a trust on behalf of unborn beneficiaries.  Similarly, to the case of Re Jury, the High Court was asked to consent to the proposed variation of the vesting date on behalf of the Unborn Grandchildren.

Again, the High Court considered the factors in section 124(4) of the Act.  The High Court noted that:

  • The Unborn Grandchildren were only contingent beneficiaries of the Trust as they were only to benefit if their parents died before the vesting date.
  • If the Trust vested, all of the beneficiaries would face a considerable tax liability.
  • Extending the vesting date of the Trust would not be to the detriment of the Unborn Grandchildren.
  • The settlor’s intention when forming the Trust was to protect and grow trust assets to benefit his family.

Accordingly, the High Court consented to the variation of the date of distribution on behalf of the Unborn Grandchildren, extending the vesting day of the Trust to 2117.

Key Takeaways

This case confirms that the Court is prepared to utilise its discretionary powers under the Act to extend the vesting dates of trusts to mitigate potential tax liability.  It will be interesting to see how the New Zealand Courts continue to exercise their discretion under section 124 of the Act so that the beneficiaries of trusts which are drafted with inflexible terms do not suffer a detriment.

As noted in our previous article, this case reiterates the importance of receiving both trust and accounting advice when reviewing a trust or as trusts approach their vesting dates. 

If you have any questions about this article, or trusts more generally, please get in touch with 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.

 

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Kerry
Media contact - Kerry Browne
Please contact Kerry with any media enquiries and with any questions related to marketing or sponsorships on +64 9 375 8747 or via email.

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