The case involved an estate plan in which the deceased sold property to a trust for his daughter
The High Court has ruled on a dispute concerning the sale of a property between two family trusts, ordering repayment of an outstanding loan related to the transaction.
The case was brought by the trustees of one trust, who sought to set aside the sale under s. 348 of the Property Law Act 2007.
The individual at the centre of the dispute passed away in 2015, leaving behind a structured estate plan that included transferring a property to a trust established for his daughter’s benefit. As part of this arrangement, a financial agreement was made in which the seller advanced one million dollars, forgave seven hundred thousand dollars, and secured repayment of the remaining three hundred thousand dollars with a mortgage. At the time of the sale, the seller was both a trustee and a discretionary beneficiary of the trust now challenging the transaction. The financial records of that trust showed a deficit owed by the seller. The trustees argued that the sale left the seller unable to repay this deficit, thereby causing financial prejudice.
The court examined whether the property transfer fell within the scope of s. 348 of the legislation, whether the sale harmed the trust bringing the claim, whether the trust that acquired the property was entitled to protection, and whether the transaction should be undone or compensated.
The court found that the seller was solvent at the time of the sale but became insolvent as a result of the transaction. By gifting a substantial portion of the property's value, the seller lacked sufficient assets to cover the deficit owed to the trust now claiming financial harm. This met the criteria for a prejudicial disposition under the law.
Despite these findings, the court declined to reverse the sale. The judge determined that the transfer was not an attempt to defraud the trust but was carried out in line with the seller’s estate planning. The sale was not hidden, and the trust that acquired the property was found to have acted in good faith. However, the High Court ruled that the acquiring trust must fulfill its financial obligations under the loan agreement and repay the outstanding balance with interest.
The trustees of the acquiring trust were ordered to repay the outstanding amount by February 2025 and continue making payments until the full debt is cleared. The funds are to be directed to settling the deficit recorded in the financial statements of the trust bringing the claim. The court left open the possibility of further applications if adjustments to the repayment schedule became necessary.
