Countless families across New Zealand place their most valuable assets, such as their property, into a discretionary family trust.
However, when a couple separate and each party is a trustee to the same family trust, conflict and disagreement will often arise as to the management and enjoyment of trust assets. Disagreements on internal trust matters have the possibility of turning into time-consuming, expensive and public proceedings in court.
Mediation is an alternative solution for settling trust disputes and may be a more advantageous option for parties. Furthermore, the court now has the power to order that parties participate in an alternative dispute resolution (ADR) process such as mediation.
Trustees and beneficiaries have always had the ability to go to mediation to settle trust disputes if agreed upon together. However, following the introduction of the Trusts Act 2019, unless the terms of the trust indicate a contrary intention, the court now has the ability at the request of a trustee or a beneficiary or on its own motion to order parties to participate in mediation.
For the court to make this order, the issue in dispute must be an internal matter, such as a dispute between trustees and beneficiaries, or trustees and trustees. Notably, the court is able to order parties to participate in mediation regardless of whether the parties consent. Although the court still retains discretion to decide when mediation is not suitable, for example where mediation would delay resolution due to there being no realistic prospect of settlement.
While you cannot pick who will judge your case in court, through mediation there is freedom for the parties to agree upon who they would like to mediate their process. Mediation therefore allows parties to feel confident that their mediator has suitable expertise to adequately grapple with the unique challenges of their dispute given their opportunity to choose.
Settling a trust dispute through mediation ends the uncertainty which comes with court proceedings and the possibility of appeals. This often means that mediation is a less expensive and more efficient process in comparison to litigation in court. Additionally, mediation allows for the dispute to remain confidential and avoid publicity which may be preferred where issues are of a sensitive nature or a commercial business is involved within trust property. Through mediation a consensual outcome can be achieved and constructive, creative solutions can be reached, which may not be available in court proceedings.
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Written by Peter Fuscic and Niamh Forgie
© McVeagh Fleming 2023
This article is published for general information purposes only. Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice. If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice.