gray concrete cross on gray concrete surface

Have you been heard? Make your intention and wishes for your Trust known

By Kiri Williams

26 October 2023

Strategically planning the right vehicle to both build and preserve your assets for future generations has always been important. When doing so, you will also to want to ensure that the assets are managed, used or sold in a way consistent with your intentions.

The recent Court of Appeal case McLaughlin v McLaughlin [2023] NZCA 473 highlights the importance for settlors (the creators of a trust) who want to preserve assets for future generations, to make sure their directions or wishes are known to their professional advisors, including their lawyer as well as the trustees of their trust. The intention and purpose of the trust should be recorded at the time the trust is created.  This is important so that the trustees have the necessary tools and information to understand and reflect the settlor’s wishes to administer the trust in accordance with the purpose of the trust.

In McLaughlin v McLaughlin the settlors created a discretionary family trust and appointed their son, John, a trustee of the Trust. The discretionary beneficiaries were the settlors’ four sons along with any spouse, widow or widower of their sons, and any of the settlors’ grandchildren or great-grandchildren. A discretionary trust means that the trustees determine when a beneficiary may benefit from the trust and by how much. Conversely, the trustees of a fixed trust have little control, and the settlors specify who the beneficiaries are and what payments or benefits they will receive, at the time the trust is created.

The Trust owned a large block of land that adjoined a block of land owned by John. The settlors made it clear to the trustees that they wanted to subdivide land owned by the Trust and for John to play a major role in realising that goal, while being aware that John’s land would also benefit from subdivision at the same time. The trustees proceeded to subdivide the Trust’s block of land and John’s land, with John at the helm in a paid role as project manager.

Andrew and Mark, sons of the settlors, claimed in the High Court and then subsequently in the Court of Appeal, that the subdivision undertaken by the trustees was mismanaged and that the beneficiaries would have been better off had the trust land been sold as a whole and the proceeds invested. Andrew and Mark also claimed that John had benefited unfairly from the project and had earned significant fees as project manager and obtained benefits as the adjoining landowner.

In their decision the Court considered two well established rules that apply to all trustees:

  • That trustees must not benefit from their trusteeship; and
  • Trustees must not put themselves in a position where their interest and duty conflicts.

The exceptions to these rules allowing a trustee to ‘self-deal’ are:

  1. If they are expressly authorised to do so by the trust deed; or
  2. If the settlors impliedly authorise the trustee to do so; or
  3. If the trustee’s actions are sanctioned by the Court.

The Court agreed that both exceptions (a) and (b) above applied in the McLaughlin case. More significantly, the Court of Appeal clarified the legal position on when the ‘implicit authorisation’ exception can be used. Implicit authorisation may be inferred when the settlors convey and preferably record in writing at the time their trust is created, their intention as to why they are creating the trust, how they would like the trust assets managed and used and for what purpose.

The settlor’s express intentions can be seen to authorise the trustees to act in a certain way, even if a trustee would self-benefit from the decision they make and create a ‘conflict of interest’ scenario. The implicit authorisation exception is narrow and the Courts apply it cautiously and only to a specific set of circumstances where the intention was clear on the outset.

In McLaughlin it was shown that the settlors always intended the land to be developed and subdivided, and appointed John as trustee so that he could carry out their wishes. The evidence included a Memorandum of Wishes, evidence from the legal advisor at the time the trust was created and an affidavit from one of the late settlors supporting their intention. Further, the Trust Deed authorised a trustee (in this case John as the project manager who was shown to have previous experience in property management and subdivision) to charge for their services, as long as the fee was fair and reasonable.

This case demonstrates to settlors who want the next generation to use and manage their assets in a certain way, the importance of making their wishes known at the outset and to have them recorded in writing. If you would like to know more about how we can help you ensure your assets are preserved for you, your family and future descendants, while minimising the risk of inter-family and generational misunderstandings, please contact us at Pitt & Moore on 03 548 8349.

Recent changes to the Bright-Line Test: implications for Family Trusts

By Emma Marshall

29 August 2021

The Bright-Line Test (“BLT”) applies to sales of residential land making capital gain on sales taxable at the seller’s normal income tax rate if disposal occurs within a certain “bright-line period”.  Trustees need to be aware that transfers of residential property to and from family trusts are captured.

In March this year the Government extended the bright-line period for residential land to 10 years and made other significant changes.

The main home exclusion (“MHE”)

Under current rules the MHE will apply to trusts where the property was the main home of a beneficiary of a trust, if:

  • the person disposing of the land is a trustee of the trust and a principal settlor of the trust does not have a main home; or
  • if a principal settlor of the trust does have a main home, it is that main home which is being disposed of.

In this context a principal settlor means a settlor whose settlements to the trust are the greatest, or greatest equal, by market value.

However, the MHE does not apply if the person:

  • has used the MHE two times or more within the two years immediately preceding the bright-line date (disposal date) for the residential land; or
  • has engaged in a regular pattern of acquiring and disposing of residential land.

Under the 2021 amendments the MHE (whether in the trust context or otherwise) will no longer apply on an all or nothing basis. Instead, except for an allowed change of use buffer period, it will apply only for the period the property is used as the person’s main home.

Rollover Relief

To clarify the position regarding family trusts and the BLT, the Government has indicated it intends to provide rollover relief from BLT in certain instances where residential land is settled on a family trust, applicable to transfers of residential property on or after 1 April 2022. It is currently seeking submissions to determine how and when such rollover relief should apply.

Get professional advice

If you are considering making changes to the ownership of trust property, specialist legal and tax advice will be required to avoid unintended and costly tax consequences.

Talk to us

If you would like more in-depth advice or further information about the content of this article, please get in touch with the team at Pitt & Moore on 03 5488349, and ask to speak Emma Marshall, Partner.

Trusts Act 2019 Now in Force: So what now?

As most of you will be aware, the Trusts Act 2019 (the Act) came into force on 30 January 2021. Now that the dust has settled somewhat and the Act is in force it is a good time to consider what practical steps are required under the Act for Trustees.

11 April 2021

Core Documents

Each trustee is now obliged to keep copies of the trust’s core documents, most importantly the trust deed and any document varying the terms of the trust among a number of other documents.

Trustees must either keep their own copies of these documents, or ensure that at least one of the other trustees holds all of the core trust documents and will make them available on request. If you are not confident in your fellow trustees’ ability with paperwork, it is prudent to keep these documents personally.

Trustee Duties

Under the Act, trustees are now required to comply with a number of mandatory duties and default duties if they are not specifically excluded in the trust deed. The mandatory duties merely state principles of trustee conduct that have long been acknowledged as being part of the law (such as acting honestly and in good faith).

If a default duty has not been modified this may mean that trustees cannot now do things that they have become accustomed to doing.

Trustees now have an express duty to actively consider what information they will give to beneficiaries. Trustees do retain discretion about what information they provide, but there are now two important statutory presumptions. These are that:

Disclosure of Trust Information

  1. All beneficiaries should be told that they are beneficiaries, be given trustee contact details (updated as trustees change) and be advised that they have rights to request information; and
  2. Trustees should provide other trust information to beneficiaries on request.

Trustees need to ensure that they have complied with the above two principles actively. Have you disclosed to all beneficiaries that they are in fact beneficiaries?

While trustees do not have an absolute obligation to disclose information to beneficiaries when asked to do so – there are various factors specifically listed in the Act that can be considered before making a final decision – the presumption is now more heavily weighted in favour of disclosure. Those factors include considerations such as the nature of beneficiary interests, beneficiary ages, any confidentiality obligations and the effect the release of information could have on family relations. It will be important to record where these factors are relied upon.

Talk to us

If you or your fellow trustees would like further information about any of these items, please don’t hesitate to get in touch with Emma Marshall, Partner, on (03) 548 8349 for advice.

Who to Call…

I recently received a call from a farming client who I will call Bob. Bob recently experienced a bereavement of a close family member and he wanted to discuss the estate administration.

It became apparent during our conversation that life is tough for him at the moment and he feels like he’s walking through treacle. Bob also had other issues on his plate, at this stage all fairly minor, one with a contractor, another with a tenant and yet another arising from the Trusts Act 2019. On top of that were issues that were not strictly legal matters and more to do with family dynamics.

Bob didn’t feel the need to get legal advice on any of these matters outside of the estate administration largely due the fact the issues themselves weren’t overly significant and because he didn’t see the need for a ‘legal response’. And fair enough too, the cost of legal advice can at times seem disproportionate to the issue at hand.

But, as a consequence of Bob and I talking through the issues at a relatively high level we were able to create a plan for Bob and that left Bob feeling empowered and most importantly, no longer feeling overwhelmed. And that is the part of my job that I enjoy and treasure the most, being able to help guide people to their destination whatever or wherever that might be.

It made me reflect that not infrequently when I talk with clients, some issues which could have been ‘nipped in the bud’, have fully bloomed – because in part, the client thought it was too early to call in the lawyers. And again it is understandable that most people don’t reach for the phone and dial 0800-lawyer at the first sign of trouble or the embarking of an exciting new venture. But so often a small amount of time spent with a lawyer sooner rather than later is time well spent. I particularly think this is true for those in the rural sector where forging a livelihood takes a significant level of determination, confidence and resilience. And is an environment where time and money can often be in short supply. Having trusted advisors walking next to you, pointing out the pitfalls and hazards and giving you an objective sounding board is enormously beneficial. And having those discussions earlier rather than later is enormously cost effective.

It is my view that the role of a lawyer is not to know all the answers all of the time (an impossible goal) but rather to know where or how to find the answers, to provide objective advice and to shoulder some of the worry. So, my message in a nutshell – if you have an issue that’s troubling you even only a little, call your lawyer to talk it through.

Greater Transparency for Trusts in New Zealand

Significant changes are on the horizon for the landscape of trust law. The Trusts Act 2019 (“Trusts Act”) comes into force on 30 January 2021.

Trusts are extremely prominent in New Zealand, it is estimated there are between 300,000 and 500,00 trusts in New Zealand. There are a vast number of reasons why trusts are set up, for example, asset protection and tax purposes.

The changes being adopted by the Trusts Act gives the beneficiaries of a trust more power to hold the trustees to account.

Changes in Trust Law

Trustees will be required to retain and hold on to integral trust documents which set out the terms of the trust, records of trust property and accounting and financial statements.

Upon request by a beneficiary, trustees may also be required to disclose trust information to beneficiaries who request it. This information can range from the fact that a person is a beneficiary, to the terms of the trust and the administration of the trust. Trustees can withhold information from beneficiaries if they reasonably consider it should not be disclosed.

Below are some of the factors trustees will consider when weighing up whether to disclose trust information to beneficiaries.

  • The nature of the beneficial interest (what does the beneficiary stand to receive from the trust);
  • Whether any personal or commercial sensitive information is present (confidentiality issue);
  • Age of beneficiary;
  • Expectations of the settlor; and
  • Context or necessity of any request for information

It is likely the weight each factor is given, will become more clear when trustees decide not to disclose, and their decisions are challenged by a beneficiary through the courts.

Steps to take in the interim

Over the next year, trustees should discuss the process they plan to follow in respect of retaining and disclosing information to beneficiaries. Where required, trustees should seek advice to ensure they follow the Trusts Act. If processes are put in place now, then adhering to the new Act will not be an issue. It will also mean that when trustees change, there will be a robust process in place, which enables the new trustee to get up to speed on their obligations quickly.


The new law regarding disclosure allows greater transparency of trusts in New Zealand. Whilst this is a positive, the change is also likely to bring about exposure to matters which were previously kept confidential, often for good reason. It is now more crucial than ever that trustees understand their obligations in their role.

Talk to us

For expert advice on this area talk to our Trusts and Estate Planning Team.

How Do I Challenge a Will?

There are many ways a will can be challenged and when making your own will it is important that you record the reasons why you are making the provisions that you are.

An upset relative or friend can bring a claim that a will should be declared invalid because the will-maker did not have the mental capacity to make a will, or was suffering from undue influence at the time the will was made.

The Family Protection Act 1955 also provides for a class of people (generally immediately family) to challenge a will on the basis that the will-maker owed them a moral duty to provide for their proper maintenance and support but breached that duty in making the provisions made for them.

A further line of attack is provided by the Law Reform (Testamentary Promises) Act 1949. This allows any person to claim that the will-maker made a promise to provide for them under their will in exchange for services provided them in their lifetime. The Court will force the deceased’s estate to honour that bargain provided there is sufficient credible evidence for that claim.

Fundamentally though, it is not easy to challenge a will. Courts are rightly loathe to interfere in the wishes of a will-maker about what should happen to their property after death.

The situation has become difficult with the prevalent use of trusts in more recent times. The property that a will-maker has transferred to a trust in his or her lifetime does not form part of the estate of that person. Other reasons that make challenging a will more difficult is the fact that we are all living longer, and may be more likely to have capacity issues alongside with the fact that many people are now having second, third, fourth, or even simultaneous relationships with children to those different partners.

Life is more complicated than it ever used to be and certainly more complicated than the law-makers back in 1949 or 1955 would have envisaged.

The whole area is fraught with complexity and because the area is highly discretionary can generally only be assessed on a case-by-case basis applying the principles that have been developed by the Courts since the mid-century. What the Courts are often faced with is a battle between the second or third partner and the deceased’s children. Or a battle between adult child siblings. A sensitive approach is always recommended, whatever the circumstances

Claims are often brought under both the Property (Relationships) Act 1976 and the Family Protection Act 1955.

Statutory timeframes mean a challenge has to be made within 6 to 12 months – the very time when family members are still in grieving. We encourage our clients to be firm on the issues but kind to all the people concerned. Such an approach is more likely to achieve resolution that all parties can agree on and give the parties involved the dignity to move on with their lives and not see the bulk of the deceased’s estate used up on legal fees. We are certain that no will-maker would want that!

Talk to us

For expert advice on these areas talk to our Litigation and Dispute Resolution Team.

Can You Trust a Trust to Protect Your Assets

If your assets are in a trust they might not be as safe from creditors or relationship break-ups as you might think. The Courts are prepared to set aside or go around trust structures if it is justified.

Trust structures can be overturned in a number of different ways. These include if the trust has not been run properly; if it is really the “alter ego” of an individual or if the trust was really never intended to operate as a trust. If the trust structure is overturned then any benefits will be lost. For example, if the trust was established with a view to protecting assets from creditors’ claims, once overturned, those assets would be exposed. If the trust was established to hold and protect your family home from any subsequent relationships, the home will no longer be classified as “trust property” but classified as “relationship property” and therefore subject to Property (Relationships) Act, which generally presumes that both partners should share equally in the family home if their relationship is three years or more.

In the relationship property context, the Court of Appeal has recently ruled that trustees of a trust held the increase in value of a property not for the beneficiaries of the trust but for the benefit of the couple who had worked on the property. That meant it was “relationship property” not trust property and was to be shared equally. This is seen as a somewhat novel way to address efforts by a partner who was not a beneficiary of a trust and who otherwise would be unable to claim against any relationship property. The decision must be viewed against the legislative backdrop of the Property (Relationships) Act whereby all contributions, not just monetary, are considered.

When thinking about ways to protect your assets, consider a contracting out agreement instead of, or possibly as well as, a trust. Contracting out agreements allow partners to say what provisions of the Property (Relationships) Act won’t apply to their property interests in the event they separate or go into bankruptcy. Provided each person gets independent legal advice as to the effects and implications of the agreement they are hard to overturn as a challenger generally has to prove it was void due to a technicality or that it would give rise to serious injustice. For a creditor to overturn a contracting out agreement, they would generally have to prove that the agreement was entered into in order to defeat creditors. These are very high thresholds to meet.

Before you sign up to a trust it’s important to seek professional legal and accounting advice to consider whether it’s the right option or whether a contracting out agreement could better serve your needs. Good advice should also include how the trust should be administered in order to avoid potential court action later.

Talk to us

Contact our Litigation & Dispute Resolution Team today to discuss how we can assist you.