Husband and wife deadlocked trustees removed: A timely reminder to review your trusts
Trusts are popular in New Zealand for managing assets and providing increased protection from business risk and spousal claims in some circumstances. It is common for spouses or partners (spouses) to act as co-trustees of a family trust established to benefit the couple and their children. The recent case of Oldfield v Oldfield is a reminder of the court’s power to remove a trustee where it has become difficult for the trustee to act in the interests of the beneficiaries.
Reduce the risk of claims by planning ahead
Planning ahead can prevent trustee deadlocks, challenges and interruptions to trusts which may arise when family circumstances change. With trust law reform on the horizon, it is a good time for clients to review their trust deeds and to seek advice about measures which will strengthen and maintain trusts for the long term. Our experts can help you to tailor and review new and existing trusts, reducing the risk of future claims such as those brought by Mr and Mrs Oldfield.
Marriage breakdown stymied the David Oldfield Family Trust
Mr and Mrs Oldfield were married for 44 years. The Trust, which was settled during the marriage, held the family home, a holiday home in Raglan, shares in the family business, industrial land and $1.3 million in cash. The trustees were Mr and Mrs Oldfield and an independent trustee. The discretionary beneficiaries included the spouses and their children, Susan, Michael and John. Following their separation in 2015, the relationship between the spouses became acrimonious. Mr Oldfield also fell out with the three adult children.
Under the trust deed no resolutions could be adopted, and no new trustees appointed, without the agreement of Mr and Mrs Oldfield. Mr Oldfield refused to have trustee meetings with Mrs Oldfield. He remained living rent-free in the family home while Mrs Oldfield was forced to reside with Susan at a cost of $1,000 per month. Mr Oldfield would not agree to the Trust providing Mrs Oldfield a home prior to the resolution of their relationship property dispute. Justice Van Bohemen considered Mr Oldfield’s proposal, that Mrs Oldfield live in the Raglan property, confirmed his lack of empathy for other family members.
Mrs Oldfield applied for an order to remove Mr Oldfield as trustee. She also applied to have John appointed trustee in Mr Oldfield’s place. Mr Oldfield opposed the application and said that if he was to be removed, then Mrs Oldfield should be removed as well. The independent trustee wished to resign.
The welfare of the beneficiaries is paramount
In determining whether to replace either or both spouses as trustees, Justice Van Bohemen considered the principle described by the Court of Appeal in Kain v Hutton. Namely, the factors, when combined, must show that it is detrimental to the welfare of the beneficiaries for the trustee to continue in office. His Honour observed that this did not necessarily require a breach of trust, rather the case is made out where a trustee is unable to carry out his or her responsibilities to the beneficiaries, however the behaviour of the trustee may be characterised.
Impartial spouses replaced with a trustee corporation
Mr Oldfield was removed firstly, because he frustrated the purpose of the Trust and failed in his responsibilities to the other beneficiaries; and secondly, because he could not be relied on to act impartially towards the other beneficiaries of the Trust. Mrs Oldfield was also removed as trustee on the basis that the estrangement between her and Mr Oldfield meant it would be difficult for her to act impartially towards him. Justice Van Bohemen refused to appoint John as replacement trustee because he was also unlikely to act impartially.
The Court appointed the New Zealand Guardian Trust (NZGT) as sole trustee. Justice Van Bohemen was also persuaded to direct NZGT to provide a suitable home for Mrs Oldfield. As a result of the Court’s decision, the spouses’ control over the Trust was significantly reduced.
Upcoming reform of trust law
A new Trusts Bill was introduced into Parliament on 1 August 2017. The Bill passed its second reading on 9 May 2019, coming one step closer to being enacted, and is currently awaiting consideration of the whole House. The purpose of the Bill (which would replace the Trustee Act 1956 and the Perpetuities Act 1964) is to make trust law more accessible to everyday users. If enacted, the Bill will impact settlors, trustees and beneficiaries of new and existing trusts alike. Areas of change include mandatory and default trustee duties, management and disclosure of trust information and appointment, removal and replacement of trustees. Under the Bill the maximum duration of most express trusts will increase to 125 years and the Family Court will have broader powers to deal with trust claims.
If you have any questions about trust claims or if you would like further information about the proposed changes to trust law, please contact one of our experts.
Oldfield v Oldfield  NZHC 492.
Kain v Hutton  NZCA 199,  3 NZLR 349.