Jury Family Trusts
[2022] NZHC 568
•24 March 2022
IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY
I TE KŌTI MATUA O AOTEAROA NGĀMOTU ROHE
CIV-2022-443-000012
[2022] NZHC 568
UNDER Part 19 of the High Court Rules and the Trusts Act 2019 IN THE MATTER OF
The I K JURY FAMILY TRUST
BETWEEN
IAN KEITH JURY
First Applicant
CIV-2022-443-000011 IN THE MATTER OF
The D L JURY FAMILY TRUST
AND
DEBBIE LEE JURY
Second Applicant
Hearing: On the papers Appearances:
W M Patterson for Applicants
G F Kelly and K H Lawrence as Counsel to Assist
Judgment:
24 March 2022
JUDGMENT OF CULL J
[1] Two applications come before the Court in relation to proposed variations of mirror trusts, settled by Debbie Lee Jury (D L Jury Family Trust) and Ian Keith Jury (I K Jury Family Trust). The applications are identical and I deal with them together.
[2] The trusts were each settled on 12 October 1992. They have a vesting date of 30 years and are due to vest on 31 March 2022 which will cause significant difficulty for the settlors and the beneficiaries of the trusts.
Re Jury Family Trusts [2022] NZHC 568 [24 March 2022].
[3] Initially, the applications sought the Court’s consent to extend the vesting date from 31 March 2022 until the deaths of Mr Ian Jury and Ms Debbie Jury (to whom I refer as Ian and Debbie respectively). They are relatively young and their business is still held by the trusts. They wish to continue to protect their assets using the trusts for their own and their children’s benefits. Various amendments to the existing terms of the mirror trusts are sought.
[4] On receipt of the applications and in view of the relatively significant changes sought, the Court appointed Counsel to assist, Mr Greg Kelly to provide the Court with independent advice on the variations sought.1 The memorandum of Counsel, Mr Kelly and Mr Lawrence, dated 14 March 2022, provided a useful commentary on the applications and it also suggested amendments which have now been adopted by the applicants. I have incorporated the comments of Counsel to assist in this judgment.
[5] Following receipt of the memorandum of Mr Kelly, the applicants accepted Counsel’s suggestion that it was preferable for the life of the trusts to be extended to 80 years from the trust formation date. This would allow the trustees to exercise their discretion to distribute trust capital prior to vesting day, if appropriate, but it would not force the vesting of the trust capital in the event of both settlors’ unexpected passing. Mr Kelly also suggested that it may be helpful for cl 8 of the existing trust deeds (cl 6 of the proposed amended trust deed) to provide for the “power to appoint new trustees and remove existing trustees.” Both of those suggested amendments have been accepted by the applicants and by a further memorandum of Counsel for the applicants dated 15 March 2022, a revised deed with those variations is annexed to Counsel’s memorandum and draft order.
[6]If the trusts vest on 31 March 2022:
(a)each of the trusts will incur a substantial tax liability of approximately
$160,000, as confirmed by the trusts’ accountant Paul David Petrowski;
(b)Ian will exercise his power as settlor under cl 3 of the trust deed to appoint the capital of the I K Jury Family Trust to Debbie;
1 Minute of Grice J, dated 28 February 2022.
(c)Debbie will exercise her power as settlor under cl 3 of the trust deed to appoint the capital of the D L Jury Family Trust to Ian; and
(d)Ian and Debbie will then settle the capital they receive on a new, modern trust, which will last for 125 years being the maximum life of a trust now allowed.
[7]The variations proposed by the applicants are:
(a)The trust will not vest on 31 March 2022 but will continue until the 12th day of October 2072, being an extension of 80 years.2
(b)The trust deeds permit a wider range of distributions to be made to the beneficiaries.
(c)More remote members of the Jury family are removed as beneficiaries.
(d)Clause 8 of the existing deed (now cl 6 of the proposed amended trust deed) provides for the power to appoint new trustees and remove existing trustees.
[8] Copies of the trust deed with the proposed changes tracked were annexed to the affidavit of Ian and Debbie. The main changes initially proposed were as follows:
(a)The vesting date of both trusts is to be extended beyond 31 March 2022.
(b)A new power which allows the trustees to apply capital as well as income for the welfare of the discretionary beneficiaries of each trust (amended cl 2(b) of both trust deeds).
(c)On the death of the first of the settlors, the survivor will become a discretionary beneficiary of the trust they settled (amended cl 2(b) of the D L Jury Family Trust deed);
2 Initially the proposal was that the trust will continue until the death of the survivor but the applicants have accepted the suggestion of Counsel to assist, that the trust be extended to 80 years.
(d)The prohibition on benefitting the settlor will be removed (amended cl 6 of both trust deeds);
(e)Subject to any appointment otherwise, the final beneficiaries will be the settlor’s children, with a gift-over provision in favour of grandchildren (amended cl 3 of both trust deeds);
(f)The trustees will no longer have a discretion to substitute spouses of deceased children or grandchildren as beneficiaries on vesting day (deleted cl 4 of both trust deeds);
(g)A power of termination in relation to capital which has been appointed is to be deleted as it is considered redundant (deleted cl 7 of both trust deeds).
[9] Following the memorandum of Counsel to assist, the two further variations are:
(h)The trusts will both vest on 12 October 2072 (amended cl 2 of both trust deeds); and
(i)The power of appointment and removal of trustees will pass from the settlor to his/her wife/husband if the settlor dies and ultimately pass to the executors or administrators of the estate of the survivor (amended former cl 8 of the existing trust deeds, now cl 6 of the proposed amended trust deed).
[10] Minor changes are also made to reflect the changes and an amendment to cl 2(c) of each trustee relating to income accumulation.
[11] Written consents were provided by the trustees of each trust, by the applicants and by their adult daughters Ashleigh and Kylie. Kylie’s husband has also consented in writing. Counsel for the applicants has advised the Court that the drafted amendments to cl s2 and 6 (formerly cl 8) of each deed have been approved by Counsel assisting as well as by the applicants. As I have noted, Ashleigh is separated
from her husband Trent Murray and they have settled their property but have not yet dissolved their marriage.
Why is the variation sought?
[12] The applicants say they understand the trusts were set up to last only 30 years on accounting advice. This has been confirmed by a lawyer trustee of each of the trusts and a partner in the law firm that had set up the trusts. The exact details of the advice no longer exist as the relevant legal files were many years old and have been destroyed.
The nature of the interests
[13] The minor grandchildren are discretionary and contingent final beneficiaries of the trusts. Unborn grandchildren share the minors’ interests, so they are collectively referred to as “the minors.” It is the minors’ interests that are primarily affected by the application.
[14] The minors only benefit directly on vesting day if the trustees exercise a discretion in their favour. Given the trusts vest on 31 March 2022, when the settlors have indicated their intention to appoint the trust fund in favour of each other, the prospect of the minors benefitting directly under the existing trust arrangements is negligible.
[15] In relation to spouses of children and grandchildren, they can only be interested as potential final beneficiaries of the trust, again, with the trustees exercising their discretion under the trust deed. There is no possibility of any future spouse being affected by the variations, according to the evidence. Kylie’s husband has consented and the position of Ashleigh’s husband is addressed below.
[16] Ian and Debbie have indicated they intend to resettle the trust and it is likely that Ashleigh and Kylie will be the final beneficiaries of the new trust.
[17] In the event of the trusts vesting and the assets being resettled, the family as a whole would be disadvantaged by the tax payable and any exposure of the assets to
creditors’ claims. There appears to be no detriment to the minors in the extension of the life of the trusts. There is a benefit to the family and potentially to the minors specifically, if the tax liability is not faced.
[18] The variations provide powers to pay capital to Ian and Debbie. This could be perceived as detriment to the minors and their parents as the trust assets may be reduced prior to the vesting day. However, any new trust on which the assets might otherwise be resettled would, inevitably, contain such powers. In fact, a new trust deed would likely have more limited powers to pay capital as each of Ian and Debbie can only benefit from a trust settled by the other until the death of the first of them. The variations appear to be in the minors’ interests in that regard.
[19] As the other major change is to remove the trustees’ discretion to substitute spouses of deceased’s children or grandchildren as beneficiaries on vesting day in the event of either Ashleigh or Kylie dying before vesting day, it is arguable that it is in the minors’ best interests that benefits pass to them directly rather than to their parents’ spouse.
[20] If a minor died, it might be in their interests for their own spouse to be substituted as a final beneficiary. However, as Mr Kelly noted, modern practice is generally to exclude spouses from inter-generational trust arrangements to protect against relationship property claims. This would likely apply to the new trust.
Settlors’ intention
[21] There is no doubt that Ian and Debbie intended the trust to provide asset protection and financial security during their lifetimes and that the trust assets were to pass to their children in due course, either via the trusts or now through new trusts. The existing trusts’ structures do not achieve the asset protection sought originally as they vest while Ian and Debbie are still young and operating a business. The assets will be exposed to creditor claims even after being resettled due to the claw-back provisions under the Insolvency Act 1986, Companies Act 1993 and Property Law Act 2007. There will be significant tax consequences.
[22] The existing structures also fail to provide Ian and Debbie with financial security as there is no power to pay out capital to either of them. The trustees are restricted to providing loans and to distributing income. While the trusts have a reasonable income at present, this is not guaranteed to remain in the long-term. The settlors say that they support the application for variation to ensure capital can be paid.
[23] As noted, modern practice is to exclude spouses and partners from inter- generational family trusts to ensure the assets are protected for lineal descendants and not vulnerable to relationship property claims. The proposed modification in this regard is consistent with the settlors’ intentions in that regard.
Section 124 of the Trusts Act 2019
[24] The principles relevant to this application under s 124 of the Trusts Act 2019 for approval of a variation on behalf of minors and unborn beneficiaries, are:3
(a)The Court will consider the trust provision afresh if circumstances have arisen which were not foreseen or may not have been foreseeable at the time the trust was established;
(b)The Court is able to approve an arrangement to the detriment of any person on whose behalf the Court is giving consent, provided the effect of the orders would not reduce or remove a vested interest in the trust property;
(c)The Court is to take a wide approach to benefits and detriments and 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.
[25] While the reason for setting up the mirror trusts with such short perpetuity periods is obscure, it may not have been foreseeable at the time that there would be trading assets in the trusts requiring protection or that there would be a significant tax
3 Gavin v Gavin [2021] NZHC 550 at [15(e)]–[15(g)].
liability if the trusts vested. Removal of estate duty in late 1992 was also not foreseeable. In my view, there are relevant changes in circumstances.
[26] The proposals will not reduce or remove a vested interest in the trust property. They increase the likelihood of the minors or their parents receiving property on vesting day. The proposals benefit the wider family by managing a tax liability.
[27] In the circumstances, any detriment to minor and unborn beneficiaries in this case is minimal. The benefits, in my view, significantly outweigh any detriment.4 In addition, the interests of the contingent beneficiaries are largely co-extensive with those of the grandchildren, being minors in the wider family sense.5
[28] In Re Craig, the High Court was asked to consent on behalf of minor and potential beneficiaries to an extension of the life of the trust, which would enable the trust assets to be realised in due course and to the best advantage of the beneficiaries.6 The Court recognised that the tax liability would be forced on the trust or its beneficiaries if the Court did not extend the date of distribution.7 The extension was found to be in the beneficiaries’ best interests.8
[29] In my view, it is appropriate for the Court to consent on behalf of minor and unborn beneficiaries in this case.
Section 125 of the Trusts Act 2019 – waiving the requirement of beneficiary consent to a proposed variation
[30] When considering an application under s 125 of the Trusts Act, the Court must consider:
(a)the nature of the relevant beneficiary’s interest in a trust property and the effect of the proposed order on that interest;
4 Brown v Hallet [2016] NZHC 2861.
5 Freeman v Freeman [2016] NZHC 2100 at [8].
6 Re Craig [2019] NZHC 2386.
7 At [2].
8 At [9].
(b)the benefit or detriment that may result to that person if the Court makes or refuses to make the proposed order; and
(c)the intentions of the settlor of the trust in settling the trust, if it is practicable to ascertain those intentions.
[31] The only waiver required is in relation to Ashleigh’s husband, Trent Murray. The evidence indicates that they intend to dissolve their marriage, two years after the separation date, and that they have settled their property interests. As Mr Murray is an adult and ascertainable, he does not fall within s 124 of the Trusts Act. The Court cannot consent on his behalf, although it may waive his consent under s 125 of the Trusts Act.
[32] Mr Murray’s present interest is only as a potential final beneficiary. In order for him to benefit, Ashleigh would have to die before the vesting date, on 31 March 2022 and the trustees would need to exercise their discretion under cl 4 of the trust deed. It appears from the evidence, there is no prospect of his benefitting from the existing trust. Therefore, there is no prospect of the proposed variation having any effect on his position.
[33] In Rubi v Rubi the consents of minor beneficiaries were waived.9 They had never benefitted from the trust property and were not expected to do so. Conversely, the benefits of the variation to the immediate family affected by the proposal, were significant.
[34] In view of the fact Ashleigh and Trent Murray have settled their relationship property maters and there is no real possibility that he will benefit by the exercise of the trustee’s discretion. In my view, Mr Murray’s interests are remote. His consent to the proposed changes as a beneficiary is waived.
9 Rubi v Rubi [2022] NZHC 282 at [45]–[57].
Conclusion
[35] In conclusion, I consider that the benefit to the beneficiaries and the family for whom the trusts were set up, far outweigh the detriments of putting this proposal in place.
[36] In relation to the minors and unborn children, there is little detriment to their interests, if the variations are approved. On the other hand, if the trusts vest on 31 March 2022, a significant tax liability will be incurred and if the settlors receive the assets now and resettle the trust’s assets on the new trust, they will enjoy reduced creditor protection. The terms of the new trust would likely also confer broader powers on the trustees to pay capital to the settlors than the variations provide in the proposed variations.
[37] Therefore, I am satisfied that in the interests of the minors and unborn children, the variation be approved under s 124 of the Trusts Act and I do so accordingly.
[38] I have dealt with the position of the spouses of the adult beneficiaries. There is no possibility of any future spouse being affected by the variations. As Kylie’s husband has consented in writing, nothing further is required. However, I waive the requirement of the consent of Ashleigh’s husband under s 125 of the Trusts Act.
[39] As noted, Mr Kelly suggested two further amendments which would provide more flexibility in the trust administration and prevent unintended consequences in the event of the settlors’ unexpected deaths. Counsel for the applicants favours both amendments. That is, that the life of the trust be extended to 80 years from the formation date of the trusts and there be more flexibility in cl 8 of the deeds relating to the power to appoint and remove trustees. Counsel for the applicants has filed a revised order.
[40]In the circumstances, I make the following orders.
(a)Granting leave to commence this application by originating application.
(b)Approving on behalf of the following persons:
(i)the living grandchildren of the applicant, namely JACK IAN MISCHEFSKI, INDY LEAH MISCHEFSKI, COOPER ROSE MURRAY and BENTLEY FINN MURRAY.
(ii)any future child, grandchild or great-grandchild of the applicant;
(iii)any future wife of the applicant, any future wife or husband of any deceased child or grandchild of the applicant and TRENT GRANT JAMES MURRAY the separated husband of ASHLEIGH MICHELLE MURRAY a daughter of the applicant;
the variation of the I K Jury Family Trust in the form annexed to the further memorandum of Counsel for the applicants in both applications dated 15 March 2022.
[41] As was indicated in the Minute of Grice J of 28 February 2022, the costs of Counsel to assist, should be borne by the applicants. An order directing those costs be paid by the applicants is made accordingly.
Cull J
Solicitors:
Govett, Quilliam, Solicitors, New Plymouth Greg Kelly Law Ltd, Wellington
4
5
0