The High Court has released a decision regarding a family trust that is noteworthy not so much for the ultimate outcome, but for its comments on the nature of trusts in New Zealand and the status of settlors’ wishes.

A classic New Zealand discretionary trust 

The decision in Queenin v Queenin¹ concerned the Queenin Family Trust (Trust), settled by Bertram Queenin and his wife Diana Queenin in October 2007. 

At that stage they settled on to the Trust three properties, being their home, a holiday home, and a rental property. The trustees were the two of them and one of their three sons, Aaron Queenin. 

It is not explicitly stated in the judgment, but it seems that the Trust was settled on standard discretionary terms. 

The beneficiaries are Bertram, Diana, Aaron, and his two brothers Gareth Queenin and Jay Queenin, along with Bertram and Diana’s remoter issue and certain trusts. Bertram and Diana hold powers of appointment and removal of trustees in relation to the Trust. 

The trustees’ governance and administration were clearly deficient. The judgment notes that “there was little in the way of formal decision making undertaken by the trust [sic]^2”3. It also notes that maintenance of the Trust’s properties appears to have been undertaken by Bertram and Diana and that “they appeared to have been informally remunerated by the trust from time-to-time, albeit in the absence of any formal decision taken by the trustees.”⁴. Further, “[a]lthough financial statements were prepared on behalf of the trust … no signed and dated copies have been disclosed”⁵.

The decision to wind up the Trust

Following the enactment of the Trusts Act 2019, in 2022 Bertram and Diana began considering whether the Trust was still required, given what they considered to be higher compliance costs.

Perhaps coincidentally, around the same time Aaron wrote to them to ask what their wishes were with respect to the Trust and how they wished “it to be run in the future”⁶. Apparently, they did not reply.

However, Bertram and Diana obtained tax advice on the implications of winding up the trust, and ultimately decided to proceed.

They instructed the Trust’s solicitors to draft the documents required to wind up the Trust. They signed the documents and instructed the solicitors to forward them to Aaron for execution which, after an unexplained delay of three weeks, they did.

It seems that there was very little, if any, engagement with Aaron regarding the decision that Bertram and Diana wished the trustees to make.

Disagreement with the decision

At that point Aaron made it clear that he did not support the decision to wind up the Trust, or at least (perhaps not unreasonably), he wanted to have a discussion with his parents before proceeding. He told them he wanted to discuss the wind up in more detail and agree a “road map as to how the dissolution [will affect the family]⁷.” Presumably, the trust deed reflected the default position under the common law and the Trusts Act 2019 that trustees must act unanimously. For this reason, it seems that Aaron’s agreement was required to wind up the Trust.

What followed next was a series of communications between Aaron and Bertram, and then Aaron and the Trust’s solicitors. It seems that Bertram and Diana were not interested in discussing the proposal with Aaron in any detail. At some point during these communications, it was suggested by the Trust’s solicitors that Aaron could resign as trustee, if he did not wish to sign the wind up documents.

Aaron ultimately sought advice on the matter from an independent solicitor. Aaron’s solicitor wrote to the Trust’s solicitors to confirm that Aaron wished to remain as a trustee; to note that he disagreed with the distribution of the entire trust fund to Bertram and Diana but that he was willing to discuss alternative options; and to raise concerns with the lack of due process and “disregard for the Trustee obligations of the Trustee Act [sic] by the other Trustees”⁸.

Bertram and Diana then engaged another law firm to act for them in their capacity as the settlors of the Trust. Their new solicitor responded to Aaron’s solicitor by giving notice that he had been removed as a trustee under the deed creating the Trust and under sections 92(1)(a) and 103 of the Trusts Act 2019 and would be replaced by a corporate trustee controlled by Bertram and Diana’s accountant.

The claims by Aaron and the judge’s responses

Following several rounds of correspondence between Bertram and Diana’s solicitor and Aaron’s solicitor, Aaron filed proceedings against them. He pleaded three causes of action:⁹

1. a claim that it was not open to Bert[ram] and Diana to remove him as a trustee;
2. a review of the exercise of powers by Bert[ram] and Diana as appointers and removers to remove Aaron and appoint a new trustee; and
3. a review of the exercise of powers by Bert[ram] and Diana as trustees.

The judge began by noting that it was not clear why Aaron had brought the proceedings. Aaron’s counsel had argued that Aaron wished to discharge his duties under the Trusts Act 2019, including to ensure that the Trust is managed for the benefit of all of the beneficiaries, not just Bertram and Diana.

The judge responded as follows:

Such an approach ignores the undisputed context to these proceedings. The trust assets represent the capital accumulated by Bert and Diana over their lifetimes. As noted, the trust assets include the home in which they live as well as the family bach. It was Bert and Diana that chose to place these assets in a family trust, as many New Zealand couples in their position have done, in order to protect those assets and as a mechanism to ultimately pass their assets to their family once they themselves no longer require them. The fact that Bert and Diana are, in terms of the trust deed, simply discretionary beneficiaries like their sons cannot diminish their contributions to the trust properties. In fact, their contributions and the relevant context may well be sufficient to establish an institutional constructive trust over the trust properties [emphasis added].¹⁰

Later in the judgment the judge made similar comments:

In the circumstances, it is clear that Aaron’s expressed concern for “the benefit of all beneficiaries” simply ignored any recognition of the context of the establishment of the trust and the reality that each of the assets held by the trust was critical to his parents [sic] ability to enjoy a comfortable retirement — following which, and upon their passing, the trust assets would presumably pass to Aaron and the other discretionary beneficiaries through the trust and/or testamentary dispositions [emphasis added].¹¹

Similarly:

More generally, I do not accept Mr Johnson’s submissions on behalf of Aaron that the Trusts Act has changed the landscape of small family trusts so fundamentally that those who have settled trusts for planning or asset protection purposes can no longer expect to control them for their own benefit. Although clearly the obligations for trustees are more explicit under the Trusts Act than hitherto, I do not think it is reasonable for a trustee appointed by the settlors in a small family trust to ignore the essential context and the very reason the trust was established in the first place in order to argue that the Trusts Act now means that settlors/trustees like Bert and Diana cannot expect to enjoy the fruits of their labours and must instead run the trust as though they are just two of a particular class of beneficiaries, with no greater claim to use of the trust assets than the other beneficiaries.¹²

The judge also noted that neither Aaron nor any other member of the Queenin family had contributed any assets to the Trust.¹³

Later in the judgment the judge went further, suggesting that it was Aaron who had been seeking to make decisions at odds with the interests of the beneficiaries:

Instead, Aaron’s communications implied there might be others with greater claim on the assets of the trust than Bert and Diana. By a process of elimination, noting that Jay and Gareth supported their parents [sic] plans to wind up the trust and by implication clearly did not think either they or their children had a greater claim than their parents over the assets of the trust, it could only be Aaron who was seeking to benefit personally in some way from maintaining the trust. Accordingly, mirroring Aaron’s allegations against Bert and Diana, Aaron's actions seem to have been taken to benefit himself alone without regard to the interests and wishes of the other discretionary beneficiaries [emphasis added].¹⁴

A surprising interpretation of the nature of a trust

At this point it is worth pausing to comment on the judge’s approach to this matter.

His comments as to Aaron’s interest in the proceedings apparently fails to take into consideration that Aaron is a beneficiary of the Trust. Aaron was possibly concerned that the entire trust fund was being distributed to Bertram and Diana to the exclusion of him and his brothers, without any formal consideration of the three brothers’ needs and circumstances. It is not clear from the judgment whether Aaron raised his concern about the proposal from his perspective as a beneficiary, although it can reasonably be inferred. Further, Aaron had duties as a trustee and was (at least purportedly) concerned to ensure he discharged them.

What is perhaps more interesting is that the judge’s comments indicate (without explicitly saying) that because Bertram and Diana had settled the assets on the Trust, they had a greater entitlement to benefit from them. This ignores a fundamental feature of trusts, which is that once assets are gifted to trustees, they are no longer the assets of the settlors. Effective transfer of the legal and beneficial interests in the assets to a trust requires that the settlors no longer have any interest in those assets, in their capacity as settlors.

In their capacity as co-trustees, it was not open to Bertram and Diana to decide unilaterally to transfer the assets back to themselves without active participation in the decision making by their co-trustee, Aaron, after consideration of all of the relevant factors by the trustees (and without considering irrelevant factors).

Among the matrix of relevant factors are the needs and circumstances of all of the beneficiaries. Of course, Bertram and Diana’s own needs and circumstances as beneficiaries are relevant. It seems that they are either at or near retirement age and do not have sufficient assets in their own names with which to retire.

A competent trustee will always consider the interests of all beneficiaries before making a trust decision, particularly one as momentous as a decision to distribute the trust assets and wind up the trust.

Bertram and Diana’s wishes as settlors are also a relevant factor in the trustees’ decision making, and under a number of sections of the Trusts Act 2019 must be taken into account by the trustees. However, the settlors’ wishes are not binding on the trustees.

The source of the trust property is a further relevant factor in trustees’ decision making but, again, not determinative. Accordingly, the source of the trust assets does not lead inexorably to the settlors having a greater entitlement as beneficiaries to benefit from them, without bespoke drafting in the trust deed.

A constructive trust in favour of Bertram and Diana?

On the suggestion of an institutional constructive trust the judge noted:

Neither of the parties have discussed or pleaded whether there may be an institutional constructive trust over the trust assets in favour of Bert and Diana. Adopting the elements of a constructive trust set out in Lankow v Rose [1995] 1 NZLR (CA), several Court of Appeal decisions have found that institutional constructive trusts can arise over trust property: see Murrell v Hamilton [2014] NZCA 377 and Hawke’s Bay Trustee Company Ltd as trustee of the Richard Hodgkinson Trust v Judd [2016] NZCA 397. In the present case, Bert and Diana directly contributed to the trust property as settlors and indirectly through their efforts in managing the rental properties. The remaining matters to be considered in determining the existence of an institutional constructive trust would be whether Bert and Diana had a reasonable expectation of an interest in the property such that the trustees should reasonably expect to yield them the alleged interest. The overall assessment, falling within the realm of equity, is whether it would be unconscionable for the trustees to deny Bert and Diana this expectation. However, given that the trust is now intended to continue, and final distribution and/or dissolution has been postponed, this point may now be moot. Furthermore, as noted above, it was not discussed nor pleaded by either party [emphasis added].¹⁵

It is difficult to see how Bertram and Diana could successfully allege “a reasonable expectation of an interest in the property such that the trustees should reasonably expect to yield them the alleged interest” based on their settlements on the Trust. They had voluntarily gifted the assets to the Trust, to be held on entirely discretionary terms (as far as it is possible to tell from the judgment). Further, they had been compensated for their contributions to the Trust’s properties.

They must have understood when they settled the Trust that they would no longer own or have control over the assets (other than as trustees), and that they were merely two of a number of discretionary beneficiaries who might hope to benefit from the assets.

If they did not intend to create the Trust on the terms contained in the trust deed (including by relinquishing power and control over the assets), then the requirements of section 15 of the Trusts Act 2019, which relate to the creation of express trusts, would not have been met¹⁶.

Clearly, they had certain expectations, as do most settlors who are also beneficiaries of the trusts they settle. However, trustees are not bound to implement their directions and, in fact, should not do so without actively turning their minds to the decision and considering factors that are relevant to it.

The judge’s findings – largely bad news for Aaron

The judge acknowledged that there had been “nominal” management of the Trust by all trustees (although specifically mentioning Aaron) for some time. This point is only relevant so far as it supports an argument that the Trust was a sham, or that there was a breach of trustee duties, neither of which were apparently argued.

He also noted that the failure by Bertram and Diana to engage with Aaron regarding the wind-up proposal from the outset was a mistake, and that it was not surprising he felt excluded from his role as trustee given that he was expected to agree to the proposal with no discussion. The judge noted that the proceedings could have been avoided had Bertram and Diana communicated more effectively with Aaron.

However, the judge ultimately rejected Aaron’s claims, noting that they were “fundamentally misconceived, having completely failed to recognise the context.”¹⁷  

That context includes the judge’s observations regarding Bertram and Diana gifting the Trust’s assets to the Trust upon its creation, and their current reliance on the Trust to provide housing and access to its other assets. The current circumstances are of course relevant when making a decision as a trustee. However, Bertram and Diana could not necessarily expect to continue to be the only beneficiaries benefiting from the Trust, without specific drafting to give them priority, even if that had been their expectation from the outset.

The judge found that Bertram and Diana had the power to remove Aaron as a trustee, and that they had exercised that power appropriately. Accordingly, his removal as trustee was confirmed.

However, the judge did order that:

• the Trust is not to be wound up and dissolved; and
• no change is to be made to the class of discretionary beneficiaries in the trust deed,

without leave of the Court.

These orders are interesting given that the judge could not understand Aaron’s interest in the proceedings. Clearly these orders are intended to prevent certain actions that would prejudice Aaron’s interest as a beneficiary of the Trust (and the interests of the other beneficiaries).

Trustees should focus on trust governance and discharging their duties

The decision in this case is interesting not so much for the outcome, but for the comments the judge made regarding the nature of trusts and the status of settlors’ wishes. Clearly the judge felt that the settlors’ wishes (and the source of the settled assets) had primacy in making any trust decisions.

It is true that settlors’ wishes are persuasive and must be taken into account, under case law and the Trusts Act 2019. However, they are not determinative. Trustees must follow due process and engage with other interested parties including beneficiaries (and co-trustees!) before making a decision. Perhaps the judge felt that the decision would be the same whether or not this engagement occurred. It will be interesting to see whether subsequent case law follows this approach.

Many features of the Trust are common in New Zealand:

• settlors transferring most of their wealth, with a heavy focus on real estate, to a trust;
• the settlors also being trustees and beneficiaries and often treating the assets as if they are their own;
• a lack of independent or knowledgeable governance and, instead, a friend or family member (who is often also a beneficiary) acting as an additional trustee;
• a lack of attention to trust governance and administration and, sometimes, a lack of engagement with beneficiaries and others who may be affected by trust decisions.

There is therefore a significant latent risk of further similar disputes arising. Trustees have onerous duties under common law and the Trusts Act 2019, and a breach of those duties could lead to an adverse finding against them in the courts. Further, the Trusts Act 2019 has led to a greater understanding of beneficiaries’ rights with respect to trusts and, anecdotally at least, greater enforcement of those rights.

To mitigate the risk of a dispute, trustees should follow best practice for trust governance, including having regular meetings and properly documenting their decisions. A fundamental part of trust governance is to involve all trustees in decision-making, and to properly consider factors that are relevant to their decisions – including the needs and circumstances of all beneficiaries. If trustees are not sure of their obligations, they should seek legal advice.

The approach taken by the settlors in this instance is common in New Zealand, where there is often a lack of independent professional trusteeship and, sometimes, insufficient attention to governance and administration. In this instance, the court found in favour of the settlors/co-trustees. However, this will not always be the case and trustees and others with powers in relation to a trust should tread carefully to avoid an unpleasant and protracted family dispute.

This alert was written by Daniel McLaughlin, a Special Counsel in our Private Wealth team.

1. [2024] NZHC 1035.
2. Presumably, this is a reference to decision making by the trustees.
3. At [3].
4. Ibid.
5. At [14].
6. At [15].
7. At [27].
8. At [41].
9. At [6].
10. At [53].
11. At [69].
12. At [74].
13. At [54].
14. At [70].
15. At [10].
16. The Trusts Act 2019 was not in force when the Trust was created. However, in many respects, including in relation to the creation of express trusts, the Trusts Act 2019 codified existing common law.
17. At [62].