Court of Appeal decision impacts on protection of trust assets

21/09/2016

Court of appeal decision Vervoot v Forrest impacts on the protection of trust assets

In Vervoot v Forrest the Court of Appeal held that a constructive trust can be imposed over the assets of an express trust.

In short Ms A lived with Mr B for 12 years. He had a trust prior to his relationship with Ms A. The trust bought a property during their relationship. Ms A assisted in finding the property, decorating it, maintain the house and garden.

The Court of Appeal said that whilst a constructive trust could arise in those circumstances (a constructive trust imposed over the house being an asset of the express trust) and it was theoretically possible, there is nothing to show contributions that significantly added value to the Trust Asset. The claim was not therefore successful.

Of interest from that decision are the following points:-

1. If equity requires it, it is not necessary that all trustees must have known of the facts that have given rise to a constructive trust over trust assets;
2. The Court does not tolerate effective control of a trust and/or its assets. It is frowned upon when one trustee is in absolute control of trust activities and the other trustees have effectively abdicated their trustee responsibilities. In these circumstances the courts are more likely to make an adverse finding with respect to trust assets; and most importantly
3. The best means of protecting separate property is for the parties to enter into a contracting out agreement, even where the property is already owned by an express trust i.e. a discretionary family trust.

We encourage our clients that have trust assets to contact us for advice on how a contracting out agreement (previously referred to as pre-nuptial agreements) will be beneficial to your circumstances.