Reviewing the exercise of trustee discretion
Who should have standing to apply for a review?
10.23This issue particularly addresses the question of which types of beneficiaries should be able to apply under the section. The court has jurisdiction to review a decision of a trustee under section 68 only where an applicant has a beneficial interest in the trust fund. The specific wording in the section is “any person who is beneficially interested in any trust property”. Some commentators and judges have suggested that it is arguable that discretionary beneficiaries cannot apply under the section, while others have considered that it is likely that a person with contingent or vested interests, whether indefeasible or subject to divestment, would be considered “beneficially interested”.
Options for reform
The options we considered were:
(a)defining beneficiary broadly, so that anyone who might potentially, at some time, benefit under the terms of the trust or anyone who is the object of a power of appointment may apply for review under the provision; or
(b)defining beneficiary more narrowly for the purposes of the section to exclude discretionary beneficiaries or those who are merely objects of a power of appointment.
10.25We agree with the handful of submitters who commented on this issue that the broadest possible definition of beneficiary is appropriate given the very different types of discretionary and other trusts in common use in New Zealand that should be caught by this provision. The NZLS submitted that the new provision should not distinguish between beneficiaries of a trust and the objects of a power of appointment, and that both should be entitled to make an application. Additionally, the fact that trust deeds often contain a mixture of trusts, trust powers and mere powers, which the NZLS also points out, support this option. Distinctions will always remain between trusts, trust powers, and mere powers. The court is able to consider the beneficiary’s entitlements under the terms of the trust in determining whether the trustee should be required to appear and disclose their reasons.
10.26In the Introductory Issues Paper we discussed the problems that have arisen in some cases in distinguishing between a discretionary trust (where a trustee has a duty to select which beneficiaries shall actually benefit and to distribute to those selected beneficiaries) and a bare power of appointment (where the donee of a power generally has no such duty but just a discretion to distribute). Traditionally the classification as either a trust or a power has affected the duties and rights of the parties involved. The objects of a bare power of appointment cannot ask the court to enforce the power, whereas the court can intervene in a discretionary trust. The general tenor of submissions on that issue has been that the law of trusts ought to apply to powers of appointment within a trust where the donee of the power is also a trustee. We share that view and it has underpinned the development of the preferred approach across all policy areas. We see no reason to now draw a distinction in respect of applications for review.
10.27Our proposed approach is to define beneficiaries broadly, so that anyone who might potentially, at some time, benefit under the terms of the trust or anyone who is the object of a power of appointment may apply for review under the provision. We consider that it would be appropriate to allow the guardians of minor beneficiaries and representatives of incapacitated beneficiaries to apply under the section. This is consistent with the definition of beneficiary proposed in chapter 2.
10.28We also consider that settlors should be able to apply under this provision as they are an interested party in how the trustees are carrying out the trust. The evidential threshold we propose as the first stage of the process for having the exercise of a trustee’s power reviewed will ensure that settlors must have a legitimate issue with the trustee’s conduct before the court will properly consider an application.