Haszard v Estate of Burnside
[2015] NZHC 1296
•9 June 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-3230 [2015] NZHC 1296
UNDER Part 18 of the High Court Rules, s 64/64A
Trustee Act 1956 and the inherent jurisdiction of the Court
IN THE MATTER
of the Estate of DAVID ARTHUR BURNSIDE
BETWEEN
GLENN ANTHONY HASZARD AND PHILIP RUSSELL SAUNDERS AS EXECUTORS/TRUSTEES OF THE ESTATE OF DAVID ARTHUR BURNSIDE
Plaintiffs
AND
THE ESTATE OF DAVID ARTHUR BURNSIDE
Defendant
Hearing: 8 June 2015 Appearances:
G D Stringer for the Plaintiffs
P Wright as Edna Burnside's litigation guardianMinute:
9 June 2015
MINUTE OF ELLIS J
This judgment was delivered by me on 9 June 2015 at ?????
pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date:………………………….
Counsel/Solicitors:
G D Stringer, Inder Lynch, Papakura
P Wright, Barrister, Auckland
HASZARD v THE ESTATE OF BURNSIDE [2015] NZHC 1296 [9 June 2015]
[1] On 25 March 2015 Peters J declined the plaintiffs’ applications for orders under ss 64 and 64A of the Trustee Act 1956. Her reasons followed, by minute dated on 30 March 2015. In that minute she recorded that the plaintiffs might wish to submit an alternative scheme and adjourned the matter to the Duty Judge list on
8 June 2015, with leave to apply in the meantime. It is on that basis that the matter came before me today.
[2] In brief, the background is as follows.
[3] Mr Burnside died on 17 September 2013. By his Will of 15 April 20081
Mr Burnside settled his estate on trust, the terms of which provided for his widow, Edna May Burnside, to have a life interest in the estate. On her death, the residue is to vest in the Burnsides’ two surviving adult children and three named grandchildren (the residuary beneficiaries). As at 20 March 2015, the net assets of the estate trust were valued at $4,606,472.00, of which some $2.3 million is in cash. Mrs Burnside’s life interest in the estate has since been valued at $972,887.
[4] Mrs Burnside is 88 years old, lives in a rest home and has both a form of dementia and chronic obstructive pulmonary disease. There is no prospect of improvement in her health. There is no dispute that she is under an incapacity, as a result of which the Court has appointed Mr Peter Wright as Mrs Burnside’s litigation guardian.
[5] The plaintiffs (the executors/trustees of Mr Burnside’s estate) seek to vary the terms of the trust so that the assets can be distributed to the residuary beneficiaries now, rather than on Mrs Burnside’s death. Mrs Burnside’s children are in their 60s and the grandchildren are in their late 20s.
[6] Mr Wright consented to the proposal on Mrs Burnside’s behalf, subject to the
residuary beneficiaries agreeing to indemnify Mrs Burnside in respect of any claim made against her. A Deed to that effect was duly executed.
1 Admitted to probate 14 August 2013.
[7] Mr Wright’s advice before Peters J was that Mrs Burnside’s rest home fees are approximately $5,500 per month and that the majority of those fees are met by distributions to Mrs Burnside from the Edna May Burnside trust, with the balance made up by subsidies from the local health board. Mr Wright advised, and Peters J accepted, that the fees can be expected to increase over time as the level of care required also increases.
[8] Before Peters J, the plaintiffs submitted that, Mrs Burnside does not require the income she receives from the estate trust assets because she is sufficiently provided for from other resources, namely her own resources and distributions from the Edna May Burnside Family Trust and the Burnside Family Trust.
[9] On the basis of the evidence then before the Court, Peters J did not accept that submission. She said there was no evidence before the Court as to the extent of Mrs Burnside’s other resources and nor were the relevant trust deeds in evidence. She was also concerned that:
(a) it seemed that Mrs Burnside is only a discretionary beneficiary of the other two trusts and that, accordingly, there could be no certainty of future provision for her from those sources;
(b)the Deed of indemnity gave Mrs Burnside insufficient protection because she herself is incapable of enforcing it and there could be no certainty the residuary beneficiaries would meet any demand made. She noted that while one of Mrs Burnside’s children holds an enduring power of attorney from Mrs Burnside, she is also a residuary beneficiary and would therefore be in a position of conflict.
[10] Her Honour concluded that while the proposal would benefit the residuary beneficiaries, she was not satisfied that any indirect benefit to Mrs Burnside outweighed the risks that she faced if she forewent her entitlement to income under the will.
[11] Since that time Mr Stringer has filed affidavits from:
(a) Gregory Lay – the accountant for the Burnside entities and a director of the Corporate Trustee, SLA Trustees Limited;
(b) Christopher Lynch – a director of the Corporate Trustee, Inder Lynch
Trustee Company Limited;
(c) Jonathan Eriksen – an actuary who has valued Edna Burnside’s life
interest;
(d) Sarah Bush – a director of the Corporate Trustee, Inder Lynch Trustee
Company Limited;
(e) Sheelagh McLeay – a director of the Corporate Trustee, SLA Trustees
Limited; and
(f) Dianne Camilleri – Edna Burnside’s daughter and Attorney.
[12] The purpose of the further evidence is to address the various issues raised by Peters J and, in particular, her concern that Edna Burnside might not have sufficiently certain other sources of income to meet her needs, if she foregoes the life interest in the Estate of her late husband. I summarise that evidence below.
Burnside Family Trust (BFT)
[13] The trustees of the BFT are SLA Trustees Ltd & Inder Lynch Trustee Company Ltd. Mr Glenn Haszard is an advisory Trustee. Clause 1(a) of the Trust Deed provides Edna Burnside is the sole beneficiary during her lifetime. It states:
1. The Trustees shall stand possessed of the Trust Fund UPON THE TRUSTS following:-
(a) During the period of the lifetime of the survivor of the said DAVID ARTHUR BURNSIDE and EDNA MAY BURNSIDE upon trust to pay and apply the whole or such portion or portions of the trust fund the capital as well as the income thereof as the trustees may in their sole and uncontrolled discretion from time to time think fit for or towards the personal use and enjoyment of the said EDNA MAY BURNSIDE.
[14] The power of appointment is vested in the current trustees. Unanimity is required. The Trust Deed also provides that no discretionary beneficiary may be appointed a Trustee.
[15] Moreover, on 9 December 2005, Mr Burnside (the settlor of the Trust) executed a Memorandum of Wishes for the guidance of the Trustees of the BFT in the event of his death. In it, Mr Burnside acknowledged that the Trustees could not legally be bound by his wishes and that it was not his intention to fetter their discretionary powers under the BFT Trust Deed. But he recorded his hope and expectation that the Trustees would take account of the provisions of the Memorandum “to fulfil my intention of providing security for my wife Edna and for a fair and equitable treatment of my children and grandchildren from the Trust Fund.”
[16] Then, the Memorandum recorded:
I am confident that my wife Edna will have sufficient assets of her own together with the provision which I have made for my wife Edna in my Will to ensure her comfort and support. However, if for any reason this should prove not to be the case then the prime concern for my Trustees is to make sure that they make adequate provision from the income of the Trust Fund for the added comfort and support of my wife Edna during her lifetime.
[17] The BFT has net assets of $4.6 million and cash reserves of $63,500. Mr Lay has deposed that the Trust is able to meet any future needs Mrs Burnside might have. More particularly, he says that any necessary distributions could be funded from the cash reserves together with the income earned by the Trust from the lease of farmland owned by it.
[18] Mr Lay also notes that the BFT owes $550,000 to the Edna Burnside Family Trust. He says that this debt could be repaid either by the sale or mortgage of its valuable farmland assets.
Edna Burnside Family Trust (EBFT)
[19] The Trustees of the EBFT are Edna Burnside, SLA Trustees Ltd & Inder
Lynch Trustee Company Ltd. The power of appointment is vested in Edna Burnside,
and specifically not her Attorney. The Trust Deed precludes other beneficiaries from being appointed Trustees.
[20] The financial position of the EBFT is as follows:
Cash reserves $ 390,688.00 Net Assets
$1,660,000.00
Annual income (pre-tax)
$ 102,076.00
Edna Burnside current account
$ 406,000.00
[21] As noted above, the EBFT is also owed $550,000 by the BFT, which Mr Lay has said the BFT is able to repay if necessary.
[22] Mr Lay deposes that this Trust has only ever made distributions to Mrs
Burnside, including annual distributions of $66,000.00 to meet rest home costs since
2013. As I understand it, not all of this sum is, in fact, required for that purpose (because of the subsidy) and the remainder accumulates and is added to her current account.
[23] The fact that Mrs Burnside’s current account in this Trust stands at
$406,000.00 represents a clear financial pathway whereby funds can be made available to her as required.
Conflict of interest
[24] Ms Camilleri, who is Mrs Burnside’s daughter and her Attorney (pursuant to an Enduring Power of Attorney in Relation to Property dated 1 September 2008), has sworn an affidavit in which she undertakes that, if necessary she will enforce the Deed of Indemnity. The purpose of that evidence is to address the concern expressed by Peters J about Ms Camilleri’s conflict of interest (as she is also residuary beneficiary).
Law
[25] Mr Stringer referred me to a recent decision of Kos J in Clarkson v Brady2
where his Honour summarised the relevant authorities as follows:
[20] As Tipping J put it in Re Greenwood:
The purpose of s 64A is in my view to put the court into the shoes of a beneficiary who is, by reason of infancy or other incapacity, incapable of assenting to the variation, revocation or enlargement of powers proposed. Similarly the Court is put in the shoes of unborn and unknown persons. The Court, as one part of its consideration of the application, should ask itself whether, if the person on whose behalf it is acting had been alive and of full capacity and properly advised, that person would have been likely to have approved the arrangement on his or her own behalf and with or without conditions or amendment to the scheme.
[21] The principles expounded in that decision and in others such as Re Byrne and Ewington v Schultz have been collected usefully by French J in McKnight v Craig in these terms:
The following principles may be distilled from the authorities ... (i) The power to approve a variation is discretionary.
(ii) The court may consider any proposal which varies or revokes any, or all, of the trusts or a proposal which enlarges the powers of the trustees in managing or administering the property subject to the trust.
(iii) The discretion is exercised in the interests of the person on whose behalf the court is asked to approve the variation and from their point of view. The court should therefore ask itself whether the person would have given approval if that person were alive, of full capacity and properly advised.
(iv) The court can approve a scheme which conflicts with the intentions of the settlor but should not do so light.
(v) The court considers the trust provisions afresh if circumstances have arisen which were not foreseen or may not have been foreseeable at the time the trust was established.
(vi) The court cannot approve an arrangement to the detriment of any person on whose behalf the court is giving consent.
2 Clarkson v Brady [2013] NZHC 437.
(vii) But the court is to take a wide approach to benefits and detriments in arrangements and must consider the arrangements as a whole in a practical and business-like way. Indirect and intangible benefits and detriments are relevant including the welfare and honour of the family.
(viii) Difficulties may be met by amendments to the proposal or covenants by persons benefitting to make good losses to the disadvantage of other beneficiaries.
(ix) An order approving a proposed variation may be conditional.
(Footnotes omitted)
Discussion
[26] On the basis of the new evidence filed I am satisfied that Mrs Burnside has real, existing rights arising from her interests in the BFT and the EBFT and that the Trustees of those Trusts are independent and are cognisant of their duties to her, and of Mr Burnside’s wishes in that respect. I am also satisfied that the Trusts have the necessary means to meet her ongoing needs and that the Trustees will ensure that those needs are met and her interests are protected. I am also satisfied that the Deed of Indemnity provides further protection for her and that it will be implemented if and when the need arises.
[27] In terms of s 64A of the Trustee Act, therefore:
(a) Edna May Burnside is a person who has an interest in the trust arising under the will of David Arthur Burnside but is, by reason of incapacity, incapable of assenting to the proposed arrangement varying the trusts under the will, whereby:
(i)The assets which are subject to the life interest pursuant to clause 5, 6 and 7 of Mr Burnside’s Will, would be transferred to the residuary beneficiaries in accordance with the provisions of clauses 5(b) and 7(c) of the Will;
(ii)The bequest to Edna Burnside in clause 4 of the Will is cancelled and in its place the bequest of the articles of personal
and household use and the motor vehicle would go to the Burnsides’ surviving children, namely David Paul Burnside and Dianne Mary Camilleri.
(b)The circumstances that have arisen (namely Mrs Burnside’s ongoing incapacity) were, in all probability, not foreseen at the time Mr Burnside’s will was drafted;
(c) Although the point is a little paradoxical, it seems likely that Mrs Burnside would have given her approval to the arrangement had she been of full capacity;3
(d)The proposed arrangement is in the overall best interests of the beneficiaries when they are viewed as a class;
(e) The proposed arrangement is not to Mrs Burnside’s detriment
because:
(i) Mrs Burnside’s present need for funds is being met entirely by
the EBFT and that is likely to continue;
(ii)Her present and permanent incapacity is such that she will not have future needs of an order that cannot and will not be met from sources other than the trusts arising under the Will; and
(iii)An indirect benefit to her will accrue in consequence of the arrangement, namely an increase in the welfare of the members of her immediate family.
[28] Accordingly, and on behalf of Edna May Burnside, I approve the proposed arrangement varying the trusts arising under the will of David Arthur Burnside as set
out above.
3 I say paradoxical because had Mrs Burnside not been incapacitated she might have had greater need for her life interest. For that reason the issue of detriment is really the signal question here.
[29] The costs of the present application and Mr Wright’s costs are to be met from
funds from the Estate.
Rebecca Ellis J
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