trustee Archives | Edmonds Judd

Refusing an inheritance

September 11, 2023

What options does a trustee have?

What is the trustee of an estate supposed to do when a beneficiary will not accept their inheritance?

This was the question faced by Mr Holland, executor and trustee of the estates of Margaret Glue and her husband, Ian Glue.^[1] Margaret died in 2005, leaving a life interest in her estate to her husband Ian, and her remaining estate to her two sons. Ian died in 2009, also leaving his estate equally to his two sons, David and John.

Best efforts to contact beneficiary

John received his inheritance shortly after Ian’s death in 2009; John died in 2019. David, however, was unable to be contacted, despite Mr Holland’s efforts to contact him for well over a decade. His inheritance was worth approximately $300,000 as at August 2022. Mr Holland had written to David advising him of his inheritance and asking for a bank account number so the funds could be deposited.

David lived in London. Mr Holland had arranged for a professional investigator to confirm that David lived at the address known to him, and where correspondence had been sent. It was confirmed that David did live at that address; this was understood to be local authority housing (similar to ‘council housing’ in New Zealand).

Actively avoiding contact?

There was a suggestion that David may have wished to avoid receiving his inheritance as it could have disqualified him from living in that property. Welfare or social housing benefits are means-tested in many countries; it is common for these to become unavailable if a recipient’s assets exceed a certain threshold.

It is possible that David did not want to receive his inheritance because he thought he would be better off with stable and affordable housing, rather than receiving his inheritance that would then be dissipated on more expensive housing and eventually leave him in the same position. There was no specific evidence on the point, however, as David would not engage with the trustee, so this was only conjecture.

What next?

Mr Holland had held the inheritance for more than a decade and he wanted to be freed from his trustee obligations to David. Mr Holland applied to the High Court for an order^[2] asking for permission to distribute the inheritance to John’s children, on the basis that David was ‘missing’ and his entitlement should be disregarded. Mr Holland swore an affidavit that he had known Margaret and Ian Glue for many years, and they would have wanted their descendants to benefit from their estate. He thought that Margaret and Ian would have preferred that the beneficiaries of John’s estate (i.e. his children) receive the inheritance, than for the money to sit indefinitely in case David eventually decided to accept it.

The High Court noted that section 136 of the Trusts Act 2019 applied to beneficiaries who are ‘missing.’ It said that David was ‘decidedly not missing’; he could be found, but he simply would not engage with the trustee or accept his inheritance. Initially the court proposed that the money be paid to the Crown to be held in case David ever made a claim, but it was persuaded that this was not what Margaret and Ian would have wanted.

The High Court found that even though David was not missing, section 136 applied anyway because:

The trustee had taken reasonable steps to bring the inheritance to David’s attention, over more than 10 years
More than 60 days had passed since the trustee’s last attempt to contact David, and
In the circumstances, it was reasonable to disregard David’s position and direct that the inheritance be paid to John’s estate (and therefore to his beneficiaries), as though David did not exist.

The lessons in this case

While it is unusual for a beneficiary to fail to claim their inheritance, it can happen, and they may have good reasons for doing so. That can, however, make things difficult for an executor or trustee who is holding funds on their behalf.

This case is a good reminder that a trustee who is in this situation may have other options and will not be forced to hold the funds indefinitely.

^[1] Re Holland [2023] NZHC 464.

^[2] Under section 136 of the Trusts Act 2019.

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Trusts Act 2019 also affects executors and administrators of wills

August 29, 2022

Amanda Leahy

Estate, Trusts

Mandatory and default duties explained

When the Trusts Act 2019 came into force on 30 January 2021 the changes it brought were well publicised. However, not everyone is aware that the some of the provisions in this legislation also apply to wills and the administration of estates by executors. We outline executors’ mandatory and default duties as well as briefly discussing some interpretations of the latter.

The changes in trust law that came into effect on 30 January 2021 have been incorporated into estate administration law by s4B of the Administration Act 1969. It confirms that trustees’ mandatory and default duties set out in the Trusts Act also apply to executors or administrators of estates. This is an important set of protections for beneficiaries of estates who may have concerns about the way an executor is administering estate assets.

Mandatory duties for executors

Executors or administrators are now subject to mandatory duties; these cannot be modified or excluded by the terms of a will. These include the duties to:

Know the terms of the will
Act in accordance with the terms of the will
Act honestly and in good faith
Act for the benefit of the beneficiaries, and
Exercise powers under the will for a proper purpose.

All executors and administrators must be familiar with the terms of the will and follow it; they cannot do something contrary to the terms of the will unless all of the beneficiaries agree or the court has authorised the action.

They must act for the benefit of the beneficiaries. This can become difficult in some situations where executors or administrators have a close relationship with one beneficiary, and want to act in that beneficiary’s interests, rather than for the benefit of all beneficiaries.

Default duties

The default duties outlined in the Trusts Act 2019 also apply to executors and administrators of wills (unless the will expressly excludes them). Some of the most relevant default duties include the general duty of care, as well as duties to:

Invest prudently
Not to exercise powers for the executor or administrator’s own benefit
Avoid conflicts of interest
Not to profit
Act for no reward, and to
Act unanimously.

Modifying the default duties

In some circumstances, these default duties are not always appropriate to a will-maker’s circumstances. For example, often a lawyer or other professional is appointed as executor of a will, and many wills provide that professional executors can charge their usual fees, modifying the duty to act for no reward. Most professionals will not take on an executorship without being paid!

In some cases, it may be desirable for executors or administrators to invest in an asset that doesn’t seem, by ordinary standards, to be a prudent investment. Such an investment may benefit the beneficiaries (or one beneficiary), such as owning a home for a beneficiary to live in; the investment may not lead to capital growth and may not earn much (or any) income but will fulfil a social need.

Investments such as the above may bring complaints from other beneficiaries who feel an executor is favouring one beneficiary’s interests over their own.

Another example is where a will-maker leaves their spouse or partner a right to live in their joint home, and that home (an asset of the estate) does not increase in value. Such an arrangement, however, may be permitted by the will.

It might also be desirable for an executor who is also a beneficiary, to purchase an estate property in a personal capacity. It means that the executor’s personal interest – to buy the property at the lowest price – conflict with the interests of the other beneficiaries, that is to have the property sold for the highest price. The will may allow such a purchase, although to help minimise arguments, it might require a registered valuation to guide the sale price.

Lawyers’ obligations

When you’re signing your will, we will explain all the modifications of, or exclusions to, the default duties that are included in the will. We will often include executor/administrator powers that will over-ride some of the default duties, such as those we’ve explained in the paragraphs on page two.

We will also take reasonable steps to ensure that you understand the meaning and effect of any clause in your new will that modifies, or excludes, those default duties.

This is an additional safeguard to ensure that when you sign your will you understand the implications of the terms of your will. It also means that if beneficiaries have any concerns about the terms of your will, such as in one of the situations we set out on page two, they should have confidence that you intended to word your will in that way and you understood the consequences.

If you have any concerns about your own will, or of a will of which you are acting as a trustee or administrator, please don’t hesitate to contact us.