When Family Trusts Meet Family Protection Claims

Many New Zealanders establish family trusts as part of their estate planning, often with the understanding that these structures will provide certainty about how their assets will be distributed after death. However, a developing area of law suggests that trust arrangements may not always prevent successful claims under the Family Protection Act.

Understanding the Family Protection Act

The Family Protection Act 1955 allows certain family members to make claims against an estate if they believe they have not been adequately provided for in the deceased's Will. The Act is founded on the principle that testators have a moral duty to provide for their close family members, including spouses, children, and in some cases, grandchildren and parents. The legislation effectively places limits on testamentary freedom, reflecting society's view that family obligations continue even after death.

The Evolving Legal Landscape

New Zealand courts have demonstrated an increasing willingness to look beyond trust arrangements when considering Family Protection Act claims. This judicial evolution has significant implications for both those establishing trusts and potential claimants.

While trust assets technically sit outside an estate, courts now frequently consider them relevant when assessing whether a testator has met their moral duty to provide for family members. When a deceased person maintained significant control over trust assets during their lifetime, judges will examine the "entire financial picture" when determining appropriate provision.

In several notable cases, courts have awarded claimants substantial portions of estates - sometimes nearly the entire estate - despite significant assets being held in family trusts. These decisions reflect a judicial focus on substance over form and a recognition that trusts should not be used to defeat legitimate family claims.

Key Principles for Consideration

When dealing with trusts and potential inheritance claims, these four key principles are especially important:

1. Substance Over Form: Courts increasingly examine the reality of arrangements rather than just their legal structure.

2. Control is Crucial: The level of control the deceased exercised over trust assets during their lifetime significantly influences court decisions.

3. Moral Obligations Persist: New Zealand law continues to recognise a moral duty to provide for close family members, regardless of trust structure.

4. Timing Considerations: Claims under the Family Protection Act must generally be filed within 12 months of probate. It is imperative that potential claimants seek advice promptly to ensure that statutory timeframes aren't missed, as this will impact their ability to bring a claim.

Professional Guidance Is Essential

Each situation involves unique circumstances and complexities. The evolving legal precedents demonstrate that while family trusts remain valuable planning tools, their effectiveness in circumventing moral duties has been significantly affected by judicial interpretation.

Professional legal advice is essential for those considering either establishing trusts or making potential claims where trusts are involved.

If you're considering a Family Protection Act claim or need advice regarding an estate matter involving trusts, contact us today.

Anna Bodman specialises in relationship law with particular expertise in estate litigation at Cavell Leitch. With experience in the Family, District, High Courts and Court of Appeal, she provides both technical expertise and practical guidance for complex estate matters.

This article is intended for general information purposes only and does not constitute legal advice. For specific guidance on your situation, please contact our office for a consultation.