The recent Court of Appeal decision in the Clayton v Clayton decision is ground breaking to say the very least.  While the decision is likely to be appealed to the Supreme Court because of the significance of it, it effectively busts trusts.

The term “Trust busting” is used when there is an attempt to penetrate a Trust structure and have the assets held by the Trust declared by the Courts to be owned personally by an individual.  The end result is that the Trust’s assets are then considered part of that individual’s net worth and are available to former spouses/partners with valid claims against that individual.

In its judgement of the Clayton v Clayton case the Court of Appeal has stated that the right to appoint and remove trustees is in itself property and a valuable asset of the appointor.  This means that that right has to be valued and the Court of Appeal found that the value of the right was equal to the net assets of the trust.  Therefore the trust’s assets were property of the person holding the power of appointment.

The significance of this is that for many individuals who have created trusts either during or subsequent to relationships, the assets in those trusts are now likely to be relationship property and subject to claim by their spouses.  In a single statement, the Court of Appeal has busted open the vast majority of trusts in New Zealand to future matrimonial claim and the 50/50 division of assets with their former spouse.

As noted, it is likely that the decision will be appealed to the Supreme Court. It will be very interesting so see whether their view differs.

In the meanwhile, we recommend that if in doubt you obtain advice immediately and that, more importantly, before entering into an a relationship or at worst within 3 years of entering into one, make sure that you get a properly executed pre-nuptial agreement as these still provide the best protection at the moment.

With the administration of trusts under the spot light we cannot stress the importance to obtain the right advice and set up the right trust structure to demonstrate that the management of the trust has a genuine intention to assist its beneficiaries.

The Covisory team specialise in this area and we are well equipped to deal with your specific needs. With the establishment of Covisory Trust Services Limited in 2014 we are well placed to assist you with all your trust administration, formation and advice needs.

We are in a position to provide an independent Trustee Company for New Zealand Domestic Trusts (Covisory Trust Limited) and for New Zealand Foreign Trusts (Covisory (NZ) Trust Limited) which act as a trustee of the Trust.

We work with you to ensure that all trustees are actively involved in all decisions of the trust, and that the trustees have given due consideration to the best interests of the beneficiaries in any decision made and that each Trustee understands the implications for each decision made.  We will ensure that all resolutions are documented, record keeping is up to date and accurate reporting is maintained.

If you would like to find out more about Covisory Trust Services please visit us at https://covisory.com/trust-services/ or talk to Nigel Smith today on +64 9 307 1777 (nigel@covisory.com) or Marcus Diprose on +64 9 307 1777 (marcus@covisory.com ).