Recent Decisions from the Supreme Court on Trusts – What they Mean for You

Two recent Supreme Court decisions - Cooper v Pinney and Legler v Formannoij - appear to send conflicting signals about acceptable levels of control over trusts.  On one hand, Legler suggests that a single person effectively controlling a corporate trustee does not, in itself, undermine a trust.  On the other hand, Cooper implies that trust control needs closer scrutiny when considering whether relationship property claims may apply.

For those setting up, managing, or attempting to challenge trusts, this inconsistency raises an important question: when does control over a trust amount to ownership, and when is it simply part of a valid trust structure?

The Tension at a Glance

At the heart of the decisions is a fundamental tension:

   1. In Legler the Court upheld a trustee appointment despite allegations that it was made for an improper purpose. The dispute arose when the children of the deceased settlor challenged their stepmother’s decision to appoint a corporate trustee of which she was the sole director and shareholder. The Court ruled that while she effectively controlled the company, this did not necessarily mean the appointment was improper. The result reinforces that controlling a trust alone is not inherently problematic in equity.

   2. In Cooper the Court took a different approach when assessing control in the context of relationship property. The dispute centred on whether Mr Pinney’s powers within a family trust—such as the ability to appoint and remove trustees and distribute assets—constituted property under the Property (Relationships) Act.  If classified as property, the powers may have fallen into the relationship property pool to be divided between Mr Pinney and Ms Cooper following the breakdown of their relationship.  However, the Supreme Court ruled that, because the powers were constrained by fiduciary duties, they did not constitute personal property interests.

The rulings certainly appear at odds and highlight the different approaches taken in trust law (often focussed on process rather than effect) and relationship property (designed to prevent unfair outcomes in asset division).

Key Practical Takeaways

How should you approach structuring and administering your trust in light of these decisions?

 1. Structure Trust Control Carefully

Carefully consider who will have control over your trust. If you hold extensive powers as a settlor, trustee, beneficiary, and the person having the power to appoint and remove trustees, this could lead to scrutiny under the Property (Relationships) Act, though perhaps not in trust law.  Adding independent trustees and/or requiring unanimous decisions for key trust actions can help reduce this risk.

 2. Record and Document Trust Decisions

Courts look to both process and intent, and keeping clear records of trustee decisions can help justify each of these in a situation where a claim is made against your trust.  If a decision is questioned, having a well-documented history of the background and reasoning for the decision will be crucial in proving that a trust has been managed properly. The records should address how the particular decision is ultimately in the beneficiaries’ interests.

 3. Recognise and Accept that Relationship Property Law Has a Different Lens than Equity

Just because a structure is legally valid does not make it immune to relationship property claims. Seek legal advice on how your powers could be interpreted under the Property (Relationships) Act.

Final Thoughts – A Balancing Act

The Supreme Court’s recent rulings highlight an ongoing challenge in trust law:  balancing the need to respect valid trust structures while preventing misuse. The key takeaway is that trust control is not a straightforward issue – it depends on the context. The decisions offer a timely reminder that trust structures must be well-thought-out prior to formation and should be regularly reviewed throughout the lifetime of the trust to ensure that they are defendable in different legal scenarios.

If you have questions about how these rulings may affect your trust or have concerns about protecting your assets from the possibility of a claim, our Asset Planning Team is here to help. Contact us to discuss a review of your trust and ensure your structure continues to provide the protections you require.