ComplianceSeptember 20, 2021

Appointing sole corporate trustee: fraud on a power?

Whether exercise of power of appointment of sole corporate trustee was fraud on a power

Legler v Formannoij (2021) 5 NZTR ¶31-006 concerned the exercise of a power of appointment and whether this had been a fraud on a power. 

Two trusts had been formed:

  • the plaintiffs (children of the husband’s prior marriage) were final beneficiaries of the first trust
  • the defendant (stepmother to the plaintiff children) and her now deceased husband were final beneficiaries of the second trust. 

The trust deed required 2 trustees or a sole corporate trustee. The defendant, after taking legal advice, appointed a company of which she was sole director as trustee of the second family trust. She subsequently removed the stepchildren as discretionary beneficiaries and appointed herself as the beneficiary for whom the trust would be held on vesting day. 

The principal issue was whether exercise of power of appointment, which the defendant controlled, was a fraud on a power if used to appoint a sole corporate trustee. 

Influencing the High Court were the facts of the case and the Australian High Court decision in Montevento Holdings Pty Ltd v Scaffidi [2012] HCA 48, (2012) 246 CLR 325 at [165]. In the Montevento case, the trust deed drew a distinction between a corporation and an individual and did not prohibit Montevento’s appointment despite its control by a beneficiary. (The appointor was a beneficiary who appointed a company as sole trustee, and the appointor was sole director and shareholder of the company.)  

In Legler, the Court concluded, “Montevento is high authority for the proposition a single corporate trustee controlled by a beneficiary is not inherently objectionable in a family trust setting”, at [66]. The plaintiffs’ claim was dismissed.

Source: Legler v Formannoij [2021] NZHC 1271; (2021) 5 NZTR ¶31-006, 2 June 2021. 


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