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Trustees - Claim Examples

Family Trust Funds

The insured was an accountant who as part of his practice acted as a trustee on many client trusts. The other trustee was a lawyer. The particular trust which gave rise to the claim was a discretionary family trust which contained a provision that the capital held in the trust was to be vested in the three sons of the settlor on a specified date based on the youngest son attaining the age of 30 years but with the provision that the assets could remain in the trust beyond the vesting date if the beneficiaries so agreed. 

The vesting date came but the settlor advised the trustees that he wished the funds to remain in the trust because certain investments owned by the trust did not mature until after the vesting date. He told the trustees that his sons, the beneficiaries, were happy with this. However one of the sons, who was in marital strife, approached the trustees with a demand that the trust funds be distributed, or at least his share. Things went legal and the trustees received a formal claim stating that they had breached their duty to the trust by not distributing the funds on the vesting date. 

The claim quantum was based on the reduced value of funds available for distribution because in the interim the value of the trust funds had diminished in the prevailing financial market conditions. The claim was for $160,000. VL’s legal advice was that the trustees had failed in their duty. Negotiation with the beneficiaries produced an agreed settlement of $130,000 which was shared between the insured and the other trustee. Legal costs were $5,100.

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Objection to Business Plan

The insured was a large-scale Maori land-owning trust with mainly agricultural and forestry properties in the portfolio. The trust had hundreds of beneficiaries.

The trustees decided to convert a mixed forestry block (plantation and native trees) to dairy production. The decision was based on a sound business plan which clearly demonstrated significantly increased financial benefit to the trust. 

The plans were approved at a special general meeting of the trust but a group of beneficiaries whose hapu gained employment in managing the forestry objected to the conversion and lodged a claim through the Maori Land Court on the basis that the forest block was a Rahui Whenua, a place of cultural significance, and should be set aside as a reserve under the Te Tura Whenua Maori Act (Maori Lands Act).

The appellant group mustered significant legal resources in support of their case. VL engaged legal assistance for the Trust to defend the claim and after protracted hearings the Court ruled against the claimants and the Trust was permitted to proceed with its conversion plans. VL paid $97,000 in defence costs.

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Superannuation Trust Funds

The insured was the superannuation trust fund of a small manufacturing firm. The trustees were two directors of the company, the company’s lawyer and an employee representative. The company ran into financial difficulties and the two trustee directors, with the best of intentions, arranged for the company to borrow funds from the super fund under a loan agreement, engaging the legal expertise of the lawyer trustee. 

At the time, the employee trustee had left the company (and had been paid out his relatively small contributions to the fund) and had not been replaced. A fund contributor took voluntary redundancy from the company and was entitled to a pension from the fund which gave a ‘lump sum’ option. The employee opted to take a lump sum but the fund could not settle this because of its loan to the company. 

The trustees received a letter of claim from the redundant employee’s lawyer and a claim was made on the Trustees Liability insurance. The trustees had failed in their duty to the trust by misusing the fund. The company was still cash-strapped and was unable to raise the money to make settlement.

VL paid $34,000 to settle the immediate claim with a back to back agreement with the company for reimbursement on the ‘drip-feed’ over 18 months. 

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