Revocation and variation
Revocation and variation by beneficiaries
R29 The new Trusts Act should:
(1) State the common law rule (known as the rule in Saunders v Vautier) which provides that:
(a) where they are in agreement, legally capable adult beneficiaries who hold the entire beneficial interest in the trust property may act together to revoke a trust and require the trustees to distribute the trust property as they direct; and
(b) a legally capable adult beneficiary of a fixed share of trust property may, where the beneficiary has an absolute vested interest in that share, request the trustees to transfer that share to him or her. The trustees may only refuse to do so where the property is not in a form, or cannot be changed into such a form, that allows the beneficiary’s share to be transferred to the beneficiary without detrimentally affecting the interests of other beneficiaries.
(2) Clarify that where they are in agreement, and with the agreement of the trustees, legally capable adult beneficiaries who hold the entire beneficial interest in the trust property may act together to confer new powers upon trustees or deviate from, or vary, the terms of the trust.
(3) Clarify that legally capable adult beneficiaries who hold the entire beneficial interest in the trust property may consent to a resettlement of a trust, as well as a variation or revocation.
Legislation to clarify the extended rule in Saunders v Vautier
10.2 The Trustee Act 1956 does not address the circumstances under which beneficiaries are able to revoke, vary or resettle a trust by agreement. Currently the rules that apply are a matter for case law as developed by the courts. The original rule in Saunders v Vautier provided that where the beneficiaries of a trust are all adults with full legal competence and are in agreement, they can act together to require the trustees to terminate the trust and transfer the trust property to them to distribute as they see fit. The rule in Saunders v Vautier may also be used to transfer to a legally capable adult beneficiary of a fixed share of the trust property his or her share, provided the trust property is in a form that will allow the transfer of that share to him or her. However, this aspect of the rule does not apply if the beneficiary’s interest is not an absolute vested one. A beneficiary cannot request the revocation of a trust where their interest is contingent unless all beneficiaries agree (including those who would benefit if the contingency were not met).
10.3The scope of the rule in Saunders v Vautier has broadened over time and the courts have allowed beneficiaries to use the rule to confer new powers upon trustees or deviate from, or vary, the terms of the trust where the trustees are in agreement with the change. It is likely that the rule also applies to allow beneficiaries to consent to a resettlement of a trust as this would be consistent with the policy that those with the beneficial interest in property should be able to determine what happens to that property. In all cases where the original trusts are not simply being revoked, the agreement of the trustees is required, because the trustees are responsible for managing the trust in the interests of the trust’s beneficiaries.
10.4While the case law rules are reasonably clear in many respects, they are not necessarily known or understood by lay people involved with trusts. A majority of submitters (including the New Zealand Law Society) favoured codifying on the basis it would make the law more accessible for lay people and that it would also help place the court’s powers to approve variations into context. Some submitters expressed concern over the potential for unintended consequences to arise if established trust law principles in this area were encapsulated in statute.
10.5We consider that a clear statement of the law in this area would have significant educative value and recommend codifying the case law rule. We consider that concerns over inadvertent modification of the law when codifying can be addressed by carefully wording the statutory provision (see clauses 51 to 53 of the indicative draft at the end of this chapter). These clauses give effect to and illustrate our recommendation (R29).
10.6By legislating it is also possible to address the uncertainty at the edges of the rule. The new Act should clarify that legally capable adult beneficiaries may consent to a resettlement of a trust, as well as a variation or revocation. The agreement of the trustee will always be required in cases where the original trusts continue, to avoid the trustees being burdened by obligations to which they may not have agreed.