When trust is found wanting
Sir Owen Glen has a trust problem. Reports in New Zealand media which draw on court documents concerning a trust formed in the Caribbean island of Nevis show that Glen is suing two former advisers (Messrs Dickson and Miller).
Allegedly this pair advised Glen on the establishment of a trust which held $400 million of his assets. If reports are to be trusted, it would seem that Glen gave the trusteeship of the trust to Dickson and Miller (who had been close advisers and associates for 30 years) even though he wanted to keep practical control of the trust himself.
Glen is now suing Miller and Dickson. Allegedly, as trustees they had not allowed Glen access to the assets of the trust and had taken excessive fees over the years. Importantly, it would appear that Glen may have retained to himself the power of appointment and so was able to fire his trustees last year (they have been replaced by a court-appointed trustee).
Now, I know little of Nevis or its law, although my guess is that given its colonial history, its law is probably based on British law, like New Zealand's. I am not especially interested in the Nevis version of trust law nor am I really interested in Glen's private affairs. For me there is interest in these reports because they provide a reminder of how trusts sometimes go bad and of the importance of being able to get rid of external trustees.
When a family trust is formed, a deed is drawn up and signed by the parties (the settlors and the trustees). This deed sets out who is to benefit from the trust and how the assets in the trust are to be managed. As I said in this column two weeks ago, family trusts in New Zealand are discretionary, meaning that the deed gives the trustees (whoever they are from time to time) complete discretion as to whether beneficiaries will benefit from the trust and when that will happen. Trustees may choose to benefit some beneficiaries but exclude others entirely at their own choice.
Sometimes trust is misplaced as even the very best of relationships can turn. Ultimately trusts work on trust - but as we commonly see, when trust goes bad it becomes important that the settlors have certain powers. These powers include the ability to fire trustees and hire new ones which can become essential in some circumstances. If trustees are managing assets or making distributions that you as settlor did not or would not approve of, you need to be able to get rid of them.
Clearly trust has broken down between Glen and Messrs Miller and Dickson. However, Glen had one important arrow in his quiver; that he could fire against his erstwhile associates: somehow he was able to remove them.
In whatever way that might work in Nevis (he may have had to go to court), in New Zealand it would be done simply by the settlor having the power of appointment under the trust deed. With the power of appointment, trustees can be removed very quickly and easily.
Usually the settlors would take on the role of appointor when the trust is formed and they would then pass it on to someone else under their wills when they die or can no longer do the role.
Power of appointment is a fairly standard clause in most modern New Zealand trust deeds. It would pay to check to make sure it is included in your trust arrangement because the appointor is the most powerful position in a family trust: whoever has the power of appointment can remove existing trustees (who may be exercising their discretion in some unhelpful way) and appoint ones who will be more co-operative. The trustees have discretion regarding who is to benefit under the trust but whoever has power of appointment has ultimate control.
The position of appointor in any family trust may be more than useful for you if relationships sour. Although, when you first settle a trust you are likely to be appointor, in time with incapacitation or death, you will pass the power of appointment on to someone else.
Quite clearly, that person needs to be trustworthy as he or she effectively controls who will benefit and when. We should never forget that trust is the name of the game and that there may be a time when trust is found wanting.
Martin Hawes is an Authorised Financial Adviser and a disclosure statement is available on request and free of charge, or can be found at www.martinhawes.com. This article is of a general nature and is not personalised financial advice.
Sunday Star Times