Rethinking trusts

With anywhere between 300,000 and 500,000 trusts in New Zealand – one of the highest rates per head in the world – it’s common for family homes to be owned by trusts, and for this to frustrate property division after separation. The 2013 Census reported nearly 15% of households had homes held in a trust, and, in general, they don’t legally qualify as relationship property because they’re owned by the trust, not the individuals.

The Law Commission says many couples divide trust property when they separate as if the trust doesn’t exist – what it calls a pragmatic but undesirable solution. “People should not be able to take advantage of the legitimate benefits of a trust structure, but then ignore [it] when it becomes inconvenient.”

It says people often settle trusts without understanding the implications under the Property (Relationships) Act. The current law allows a partner to access trust property if it’s been disposed of into the trust to defeat the partner’s claim under the act, but the commission has proposed an amendment that will further loosen the hold of trusts. It would allow courts to order one partner to pay compensation to the other, order the trustees to distribute capital, vary the terms of the trust or resettle some, or all, of the property in a new trust if it holds property that was “produced, preserved or enhanced” by the relationship.

The commission says it wants to protect partners’ entitlements while at the same time preserving trusts. Some family lawyers told the Listener the proposals don’t go far enough, compared with, for example, Australian legislation that makes trust property more accessible in relationship splits.