Broken Trust

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Courts are handling an unprecedented number of lawsuits over family trusts as parents die and siblings and spouses go to battle over power and money. Donna Chisholm covers the courtroom battle for multimillionaire Hugh Green's estate and talks to experts in trust law for her North & South feature, published January 2015.


<ul><li><p>DONNA CHISHOLM IS NORTH &amp; SOUTHS EDITOR-AT-LARGE.</p><p>The most devastating witness was dead. But, as in life, he still had his say.It was 3.50pm on day two of Green v </p><p>Green in Aucklands High Court, the opening stanzas of a lengthy court battle over the family trust of businessman and philanthropist Hugh Green. Green died in July 2012, leaving a $400-500 million fortune and his children already at war over who should control it. </p><p>Here, in the last days of winter 2014, the Irish patriarch came briefly alive again as his gravelly Donegal accent still thick despite his 60 years in New Zealand boomed around courtroom eight.</p><p>It was a taped interview recorded for his memoirs two years before he died. In it, he spoke of his elder daughter, Maryanne. I have always been very close to Maryanne, very close to her, </p><p>because shes the same way as me in business.</p><p>She adores you, obviously, says the interviewer, Paul Little. Oh aye, shes very fond of me. Me and her get on well, never have an argument. We can talk one another round to anything. </p><p>But it was Maryanne who brought the case to court against her brother, sister and a family lawyer in an action the rest of the family believes would </p><p>BROKENTRUST</p><p>UP </p><p>BEF</p><p>OR</p><p>E TH</p><p>E B</p><p>EA</p><p>K,</p><p> PU</p><p>NC</p><p>HS</p><p> ALM</p><p>AN</p><p>AC</p><p>K 18</p><p>82 /</p><p> GE</p><p>TTY</p><p>COURTS ARE HANDLING AN UNPRECEDENTED NUMBER OF LAWSUITS OVER FAMILY TRUSTS AS PARENTS DIE AND SIBLINGS AND SPOUSES GO TO BATTLE OVER MONEY AND POWER. DONNA CHISHOLM REPORTS.</p><p> N O R T H &amp; S O U T H | J A N U A R Y 2 0 1 5 | 5 55 4 | N O R T H &amp; S O U T H | J A N U A R Y 2 0 1 5</p><p>Issues</p></li><li><p>What were seeing, legal experts say, is the result of a bubble of new trusts set up around 20 years ago by the middle classes rather than the very wealthy to protect themselves from relationship property claims and rest-home charges. Its estimated the country has more than 400,000 family trusts one of the high-est rates per head in the world. I think a lot of people unnecessarily have trusts and it comes back to bite them in the bum, Chambers says.</p><p>Wellington trust lawyer Chris Kelly says trusts were a huge growth indus-try in the 1980s and 90s but problems related to them are only now starting to come to light. They werent a prob-lem when the people who set them up were in their 40s, 50s and 60s. But now theyre into their 80s; trustees are getting old. Some will be losing their mental capacity. And a lot of the old trusts didnt say what would happen if they lost capacity. </p><p>As people get elderly, sometimes they start playing favourites within the family or get a bit cranky. They start doing things they wouldnt have done when they were younger.</p><p>According to Kelly, its common to see family dynamics change, leading (like the Greens) to a battle for control over trusts, or challenges to trustee decisions. </p><p>In a similar case in October, the High Court ruled in a long-running family trust fight over an 11ha farm, which had been in the family of 87-year-old Whenuapai farmer Lois Harre since </p><p>Maryanne Green is also applying to recall the grant of probate for the will her father made in April 2012 less than three months before he died claiming it is invalid because he lacked capacity or was unduly influenced. In the will, Green restated his appoint-ment of John and Frances, and Michael Fisher, as trustees.</p><p>The defence says Hugh Green was determined to see John take a key role after his death and had no option but to remove Maryanne when she op-posed his wishes. It says despite her having the title of CEO of the Hugh Green Group, she was little more than an office manager, having left school where she admits she struggled with no qualifications.</p><p>Justice Helen Winkelmann heard the closing submissions in late November and has reserved her decision.</p><p>Although the size of the Green for-tune makes this case unusual, battles over control of trusts or attempts to claw back the assets held in them are increasingly common in our family and civil courts.</p><p>High-profile Queens Counsel Lady Deborah Chambers, who in an inter-view with this magazine five years ago predicted an avalanche of family trust litigation, says numbers of cases are on the rise. She estimates around one in five cases now before the family and civil courts involves trusts. Theres hardly a person that walks in my door who hasnt got a trust.</p><p>Maryanne Green launched a civil claim after her fathers death contesting the appointment of three trustees.</p><p>The Green family in 2006 (from left): Maryanne, her brother Gerard, mother Moira, father Hugh, brother Eamonn, sister Frances and brother John.</p><p>Family patriarch Hugh Green.</p><p>get rid of her, they are unable to treat her and her daughter fairly as benefi-ciaries of the trust.</p><p>She believes John is not of sufficiently good character to be a trustee. The court heard how her relationship with her father broke down when he gave John increasing responsibility in the trust and the business. </p><p>Expecting them to work well to-gether as trustees and directors was a vain hope, said Maryannes lawyer, Vanessa Bruton. When John became a trustee, Hugh was committing the trust to dysfunction and disharmony.</p><p>But Stuart Grieve, QC, one of a heavy-weight legal defence team, opened his rigorous cross-examination of Mary-anne by saying, I suggest to you that this case, as far as youre concerned, is about power and control of the Hugh Green Group business, isnt it?</p><p>No, she replied. I say its about the wider trust issues.</p><p>Maryanne denied Grieves suggestion she aimed to take over her late fathers role in the business. Hugh was the entrepreneur and the money maker, and I was the guardian and the keeper. Basically the watcher, the caretaker, the guardian of his trust and business, and that has always been my talk for the 25 years Ive been there.</p><p>Her mistrust of John stemmed from some questionable business practices in his cattle dealing many years before practices he admitted werent com-mercially appropriate, but which his father was aware of and untroubled by. </p><p>law. She says when death duties were abolished in 1992, just three years after the trust was formed, the reason for setting it up disappeared but no thought was given to dismantling it. At that stage we were cruising along and the family was great.</p><p>But now, the family rift is probably permanent. Thats it, finished. It just got out of hand, ridiculous. But you cant see into the future.</p><p>While the Harres won their case against claims of improper motives, Otago University professor of law Nicola Peart one of a think-tank of advisers to the Law Commission during its recent review of trusts says whats now being looked at more closely in a variety of ways are the powers people who settle trusts retain for themselves.</p><p>In one long-running relationship property dispute involving a trust set up by Rotorua timber businessman Mark Clayton, the High Court ruled the trust hed established was illusory a real Claytons trust because he was sole trustee and also a beneficiary, and he had the power to distribute all the trust assets to himself. The Court of Appeal heard Claytons appeal in July, and a judgment is awaited. </p><p>If he loses, its likely the property held in the trust thought to be worth around $28 million will be reclassified as relationship property, allowing his wife of 17 years to take half. Melanie Clayton had signed a pre-nuptial agreement saying she would accept just $30,000 as a payout after her marriage rather than a 50-50 split. The court had earlier set that aside as being a serious injustice.</p><p>He probably thought he had a trust, says Kelly, of Mark Clayton. But when you looked at it, underneath it there was Mr Clayton as trustee for Mr Clayton and he could pay Mr Clayton any time he wanted to and no one else could com-plain. As the judge said, if the trustee is not really accountable to anyone, its not really a trust.</p><p>In several recent cases, says Peart, the courts have been asked to decide whether trustees have properly exer-cised their powers.</p><p>In September, Dunedin woman Bronwyn Penson challenged her re-moval as a beneficiary of a trust set up by her late mother, Sylvia Jack, who died in 2012. Penson said her mother had </p><p>1960. Harre had established the trust in 1989 after her late brothers family was stung for a terrific lot of death duties. In 2007, she appointed her daughter Lynette Clark and a solicitor, Colin Lucas, as trustees. Her husband, who was also a trustee, died in 2012.</p><p>Before he died, the family began to discuss what should become of the land and a decision was made to sell it, but disagreement grew over how. Harre wanted part of the land to stay in the family and didnt want it auctioned, while her son Rod, a builder, was inter-ested in subdividing. As the dispute escalated, Harre removed Lucas, and later Clark, as trustees and appointed her son and herself.</p><p>Clark and Lucas challenged the va-lidity of those appointments, saying the Harres had ulterior and improper motives towards the land. They lost, with the judge vesting the property with the Harres.</p><p>If there hadnt been a trust, Lois Harre told North &amp; South, the court case wouldnt have happened. I wish I had never formed it in the first place. I was a lot younger and more naive, but boy I have learnt now. You just go along with it when you dont really understand the </p><p>have Hugh spinning in his urn. The tape was part of the evidence she hopes will prove that she, better than anyone else in her family, knew what her dying dad really wanted. </p><p>Her efforts look likely to have frac-tured the family forever. The two sides havent spoken to each other in years, and look away pointedly when their paths cross outside court. Inside the courtroom, Maryanne and her husband, pilot Mark Owens, sit as far from the rest of the Green family as the gallery allows.</p><p>Hugh would be very upset Maryanne has not respected his wishes and has taken the family to court, his widow, Moira, who married Hugh in 1955 at the age of 18, tersely told the court later. He always said family should stick to-gether and what went on in the family should not be repeated to outsiders.</p><p>Now, thanks to more than four weeks of hearings, outsiders know in sad detail the claims and counter-claims revealing the depth of dysfunction in one of the countrys richest families a festering feud that was never revealed publicly when Hugh Green was alive.</p><p>Maryanne claims she was ousted as a trustee of the Hugh Green Trust and replaced with her siblings John and Frances and lawyer Michael Fisher when Hugh was terminally ill and lacked the capacity to make such deci-sions or that if he had capacity, he was unduly influenced by John and Fisher. Maryanne says that such is the hostility of the trustees towards her, and the scheming they undertook to </p><p>IF THE TRUSTEE IS NOT REALLY ACCOUNTABLE TO ANYONE, ITS NOT REALLY A TRUST.</p><p> N O R T H &amp; S O U T H | J A N U A R Y 2 0 1 5 | 5 75 6 | N O R T H &amp; S O U T H | J A N U A R Y 2 0 1 5</p></li><li><p>removedher simply because she didnt like her any more and this was a breach of fiduciary duty, but the associate judge threw out the case. Peart says he took the view that trustees had the power to add and remove beneficiaries and if youre appointing your children as bene-ficiaries, youre doing that because you have affection for them and when you no longer have affection for them you should be entitled to remove them. However, Peart has serious concerns about the decision. I dont think it was a case to throw out. </p><p>The decisions of parents who cut children they dont like out of wills can be challenged after their death through their moral duty obligations under the Family Proceedings Act, but the act is of no use to children removed as beneficiaries in a trust structure. So if you really want to hammer your kids, you can put all your assets into trust, leaving none in your estate, and theyll have precious little hope of seeing any of your money.</p><p>However, in numerous other ways, property transferred into trusts to qual-ify for rest-home subsidies or universi-ty student allowances is increasingly under threat. Peart says the Ministry of Social Development is now going back very aggressively into trust histories to see if people applying for subsidies have disposed of their assets into trusts.</p><p>While you can now avoid gift duties by putting entire assets into a trust at once, you still wont escape your obli-gations for rest-home fees. To qualify for a subsidy under the Social Security Act, you can gift your assets to a trust only at the rate of $6000 a year for the previous five years, and $27,000 a year per couple before that. But outside that, Peart says, the ministry is now likely to regard excess dispositions as still your property, and deny a benefit. Quite simply, the state cant afford to look after people whove got plenty of wealth sitting in trust.</p><p>She says the biggest problem remains with attitudes despite transferring ownership of their property to a trust and its beneficiaries, people continue to treat it as their own. </p><p>Chambers agrees. People still think a trust is like a cupboard that they can put the asset into and open any time they like to pull it out again.</p><p>But Kelly says judges are now begin-</p><p>ning to overrule trustees decisions. Traditionally, courts didnt like inter-fering and took the view to let them get on with it; thats what theyre appoint-ed for. Now were starting to see judges saying, well, maybe sometimes we have to intervene when theyve gone wrong and made capricious decisions.</p><p>In October, the High Court at Christ-church ruled trustees had made the wrong call when distributing $250,000 to the three siblings of Rangiora market gardener Phillip Masters, but not to him, on the basis they thought he had already benefited through a property purchase. The judge held that Masters hadnt got what the trustees thought he had.</p><p>And in 2013, the court removed two of four trustees, widow Colleen Thurs-ton and lawyer Jeremy Goodwin, from an Auckland trust after it became dead-locked and unable to make decisions. </p><p>The court held Goodwin was so closely aligned to Thurstons interests he could not act impartially towards the other beneficiaries her stepson and his three sons. The court found Thurston acted without the trustees approval by spending $875,000 on ren-ovations to the property she lived in, a trust asset of which she had sole use.</p><p>Probably the commonest of all trust disputes, though, involve relationship property. Many trusts are set up by a husband and wife, who are both trus-tees. But when the relationship breaks down and the trust requires decisions to be unanimous, there is often a stale-mate. Courts commonly remove both and appoint an independent trustee.</p><p>Even when an independent trustee someone who isnt a beneficiary is involved from the start, it isnt always straightforward, either. Quite often the professionals responsible for sett-ling trusts are effectively on one per-sons side or the other, says Auckland family law specialist Anne Hinton, QC. As in the Thurston case, theyre n...</p></li></ul>