Trustees and "Momentous Decisions"

David Smillie

February 2018. . . This article appeared in the Otago Daily Times.

As many readers will be aware, trusts have traditionally been very popular in New Zealand and they are used in a wide variety of contexts including for family and business purposes. It has been estimated that there are between 300,000 to 500,000 trusts operating in New Zealand and, while many will be discretionary family trusts which operate without any major issues, problems can arise when circumstances change and that can cause trustees to turn to the Court for guidance.

While the law relating to Trusts has been under review for many years (and a new Bill to update trust law was introduced to Parliament in August 2017) the existing legislation governing trusts is still the Trustee Act 1956. Section 66 of that Act gives trustees a broad right to apply to the High Court for directions concerning any property of the trust or in relation to the exercise of any power or discretion by trustees. This section was the subject of the recent case of Re PV Trust Services Ltd which involved a trust set up in New Zealand by Argentine citizens.

PV Trust Services Limited was the trustee of a trust set up in 2010 by a mother (Alsira) and daughter (Dulce) living in Argentina – Alsira and Dulce were the only named beneficiaries. Their intention was to maintain control of their assets (valued at around US$11 million) in a “safe” jurisdiction outside Argentina and under a structure that would make the assets available to both of them, and if either of them died, then to the survivor. The background to the case is complicated but essentially issues arose for the corporate trustee when Alsira died in April 2014 and then Dulce died unexpectedly in 2015, without formalising their instructions on a final list of beneficiaries who would be entitled to the trust funds after they had died.

Alsira’s Will had left her entire estate to Dulce, and Dulce had left her estate to two of her close friends. The executor of Dulce’s Will gave evidence that he and Dulce had had several conversations during which Dulce had told him she intended for the trust fund to be finally distributed to nine persons or entities, however the trustee (PV Trust Services Limited) had considerable doubts about whether that evidence was a reliable record of Dulce’s wishes for the trust. The trustee instead considered it would be more appropriate to distribute the trust fund in accordance with Dulce’s Will – which would mean appointing Dulce’s two close friends as new beneficiaries of the Trust and distributing the US$7.8M balance of the trust fund to them in equal shares. The trustee therefore sought directions from the High Court under section 66 of the Trustee Act that it was proper and lawful for the trustee to administer and distribute the trust on that basis.

The Judge first considered the scope of section 66 itself and confirmed that in a situation such as this one, where the trustee has formed its own view of the appropriate course of action and there is no doubt in the trustee’s mind about what should occur, the trustee can still seek the Court’s blessing given that the proposed course of action is so “momentous”. The Judge then considered all the circumstances and considered it was reasonable for the trustee to have regard to Dulce’s will (amongst other things) – the Court therefore decided it was “proper and lawful” for the trustee to distribute the trust fund as they proposed.

Dulce’s two friends obviously received a great benefit here, but the trustee PV Trust Services Limited also secured a valuable benefit because the effect of the Court’s approval under section 66 was that they were deemed to have discharged their duties as trustee – meaning they cannot be subject to any future claims from third parties who may feel aggrieved with the distribution of the trust fund to the two friends.