Terminating the trust sooner will likely advantage contingent beneficiaries, ruling says
The High Court has approved a deed of termination and distribution of a trust for a deceased man’s residuary estate, which was requested on behalf of the minor, future, and unascertained contingent beneficiaries of the will.
The man died in 1996 and left a substantial estate as well as three daughters, a son, and nine grandchildren. His will made specific bequests to his widow and to each of his four children. The will provided that, upon the death of each child, that child’s share of the residuary estate would pass equally to the grandchildren.
The man’s grandchildren were meant to be the ultimate beneficiaries of the residuary estate. Under the will, if any of his grandchildren predeceased his children while leaving children of their own, that grandchild’s remaining interest in the residuary estate would pass to their children.
The man’s will also established a trust for his residuary estate, which would terminate upon the death of the last of his children. By that time, the residuary estate would have been fully distributed to his grandchildren.
The man’s son died in 2019. The three surviving children and nine grandchildren signed a deed of termination of the trust after they decided among themselves that sharing the residuary estate at present would serve everyone’s interests.
The surviving adult beneficiaries wanted to terminate the trust, to forgo the fees associated with it, and to divide the remaining residuary estate into 12 equal shares. Their proposal would let the man’s three daughters take a discount on the value of their remaining life interest and would allow the nine grandchildren to receive an immediate lump sum payment.
The estate’s trustee filed this application under s. 124 of the Trusts Act 2019. It asked the court to approve the trust’s termination and distribution on behalf of the 14 contingent beneficiaries, who were the man’s great-grandchildren, all of whom were minors.
In Castle Trustees Limited, [2024] NZHC 3950, the High Court granted the application of the estate’s trustee. The court deemed the plan of the surviving adult beneficiaries sensible.
The court noted that s. 121 of the Trusts Act provided that termination should follow if all the trust’s beneficiaries agreed to the termination. A complication arose in this case due to the existence of the contingent beneficiaries, namely the man’s born and unborn great-grandchildren.
But the court ultimately decided that early termination and distribution in line with the deed of termination would serve the interests of all the estate’s beneficiaries, including the contingent beneficiaries.
The court found that the interests of the grandchildren and great-grandchildren diverged slightly but aligned broadly. The court concluded that immediately terminating the trust would not result in a material disadvantage to the great-grandchildren, whose interests would likely be protected by their parents.
The court added that early termination of the trust would enable the grandchildren to receive their shares of the estate much sooner, which would likely benefit all the members of their families, including the great-grandchildren.
