Part of the history of Trust Busting (and a few comments on the Petricevic cases)

An interesting albeit short article in the NZ Herald this morn commenting on the Statute of Uses…an attempt by King Henry the VIII to stop wealthy landowners transferring their land to a tax exempt organisation (typically the church) but reserving so many rights (uses) that for all practical purposes they still owned it.

The obvious parallels with pushing assets into trusts to obtain rest home subsidies are explored.

The most topical analogy is bankrupt Petricevic’s (ex-Bridgecorp) attempts to get legal aid as he’s not a beneficiary of the trusts that he set up even though he might be the settlor and a trustee.  While the sight of someone seeking legal aid while living a life of luxury is undoubtedly an offensive one, a legal principle is no good if it is only applied when it is popular to do so.

However the fact that the trust concerned – a closely held family trust – had advanced money to Petricevic in the past has allowed Justice Venning to dismiss any argument that it somehow couldn’t advance funds now as self-serving.

Modern discretionary trusts typically give the trustees the power to add or remove discretionary beneficiaries.  If a beneficiary is heading for bankruptcy, they are easily removed and usually are.  Creditors complaining that the trust should be distributing to said ex-beneficiary are then ignored.  Is Justice Venning’s decision the beginning of the end for this practice?

Well, maybe and maybe not.  In general terms this is pushing the boundary of trust law.  As Petricevic isn’t a beneficiary then strictly speaking the other trustees might even be racking up personal liability by funding him.  It is likely that Justice Venning’s decisions will be noted by higher legal authority as limited only to the particular present facts.

Abuse of the trust system or simply prudent trust management?  Fertile ground for argument either way as the pressure to reform trust law grows…


About Ivan McIntosh

I am a partner of Carter Atmore Law...residing in City Road just off the busy thoroughfare of Symonds Street, Auckland, New Zealand....where we are specialist business & property development lawyers, working for both local and international clients. Proud husband to Joanna, and dad to two sons. Passionate rugby supporter. Email: Ph: 64 9 921 5026
This entry was posted in Banking & Finance, Business Law, Trusts & Estates Law and tagged . Bookmark the permalink.

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