Abstract
Since the abolition of estate duty in 1992 new types of discretionary trusts have become popular in New Zealand for the purpose of protecting assets. Asset protection trusts have significant effects in areas of law where outcomes depend on a person’s ownership of “property”, such as the Property (Relationships) Act 1976, the Insolvency Act 2006 and the Family Protection Act 1955. This is because no individual person beneficially owns the property held in a discretionary trust; while the property is subject to being distributed at the trustee’s absolute discretion no individual beneficiary is entitled to the property. This thesis concerns the implications of a type of asset protection trust where one of the discretionary beneficiaries is given the right to replace the trustee. This “controlling” beneficiary is in an economically advantageous position because he or she has the choice to appoint a trustee who is likely, but not obliged, to prefer his or her interests to those of the other beneficiaries. Asset protection trusts will create an issue in these areas of law if they mean a controlling beneficiary can be in an economically advantageous position but not own “property”. Most existing remedies to this problem operate by directly removing property from the trust. However, these remedies do not always apply and extending them might create further problems because they coercively interfere with private property arrangements. This thesis argues that there is an alternative remedy under established principles of property law, trust law and statutory interpretation that does not interfere with the trust property but instead recognises that the relationship between the controlling beneficiary and the trustee is itself property. The question for this thesis is whether the controlling beneficiary’s rights and interests fit within “property” as that term is used in selected statutes. I argue that the meaning of property in these statutes is broad and includes interests that are legally significant, economically significant and that fit within the scheme of the legislation. I then argue that the controlling beneficiary’s discretionary interest and right to replace the trustee are both legally and economically significant. The bulk of the thesis is concerned with issues that arise under these heads, notably: the discretionary interests as “mere expectancies”, the economic significance of an “expectancy”, the legal significance of interests subject to discretions, the role of fiduciary duties in the right to replace trustees and the principles of valuation. I conclude that the thesis argument succeeds in relation to the Insolvency Act 2006 and Property (Relationships) Act 1976 but may not succeed in relation to other statutes such as the Family Protection Act 1955 due to the scheme of that legislation. The importance of this thesis is that it demonstrates the law is able provide a remedy to the problem caused by asset protection trusts without interfering with the trust’s other purposes such as succession planning.