Some lawyers are saying courts will be overloaded with fights over property held in trusts if the Government adopts Law Commission recommendations.
Maybe. But at least they would be fair fights, not the TKOs that have been resulting from people shafting their ex-spouses quite as emphatically as they have been through inadequacies in the existing law.
Commissioner Geoff McLay says courts are perceiving injustices. That perception is far more widespread than the benches of the judiciary.
The use of trusts to to protect property after marriage, civil union and relationship bust-ups is a longstanding unfairness.
A law change in 2002 tried to rebalance things but just didn't suffice because it allowed only the income from the assets held in these trusts, not the assets themselves, to be used to compensate the disadvantaged partner.
The commission wants courts to have the power to transfer trust assets in cases where they would otherwise have been available for division as relationship property. It also wants courts to be able to determine that a trust in which the assets continue to be managed as if they are the trustee's own personal property, lose their trust status.
Amen to that. And to the idea that the Family Court has more power to deal with trusts at that level.
The raft of proposed changes has the intent, chiefly, of improving clarity about the rules under which trusts operate. The stakes are high. New Zealanders are ardent users of trusts with estimates of up to 500,000 of them currently registered. (The fact that it's an estimate tends, in itself, to support the contention that things have become messy.)
The longstanding practice of using trusts to shelter income from tax may have reduced since the alignment of the top personal and trust tax rates, but there's no real doubt that the taxman is still missing out of hundreds of millions of dollars from variously protective practices. Though the proposed changes would not give the Inland Revenue Department increased powers, better definition of what is, and isn't, legitimate trust activity is likely to help the department do its job.
After all, the problem is not just sharp practice by trustees who are really trying to screw the system. A great many of them are trying to operate reasonably against some confoundingly hard legislation and the not-always-coherent case law that has, in turn, resulted from the courts trying to untangle things.
While the commission wants things made more comprehensible for trustees, it also wants to stiffen accountabilities not only through new rules around their appointment and removal, and any changes to their powers, but also by ensuring that their liability cannot be limited in cases of breach of trust, dishonesty, or gross negligence.
The Government will respond to the recommendations by March. In the meantime, the commission is still looking into further trust issues, notably charitable and other specialised trusts and the use of companies and other corporates as trustees.
That last bit might prove of particular interest in a deep-south context, where trusteeships are sometimes themselves contentious.
- © Fairfax NZ News
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