What options does a trustee have?
What is the trustee of an estate supposed to do when a beneficiary will not accept their inheritance?
This was the question faced by Mr Holland, executor and trustee of the estates of Margaret Glue and her husband, Ian Glue.1 Margaret died in 2005, leaving a life interest in her estate to her husband Ian, and her remaining estate to her two sons. Ian died in 2009, also leaving his estate equally to his two sons, David and John.
Best efforts to contact beneficiary
John received his inheritance shortly after Ian’s death in 2009; John died in 2019. David, however, was unable to be contacted, despite Mr Holland’s efforts to contact him for well over a decade. His inheritance was worth approximately $300,000 as at August 2022. Mr Holland had written to David advising him of his inheritance and asking for a bank account number so the funds could be deposited.
David lived in London. Mr Holland had arranged for a professional investigator to confirm that David lived at the address known to him, and where correspondence had been sent. It was confirmed that David did live at that address; this was understood to be local authority housing (similar to ‘council housing’ in New Zealand).
Actively avoiding contact?
There was a suggestion that David may have wished to avoid receiving his inheritance as it could have disqualified him from living in that property. Welfare or social housing benefits are means-tested in many countries; it is common for these to become unavailable if a recipient’s assets exceed a certain threshold.
It is possible that David did not want to receive his inheritance because he thought he would be better off with stable and affordable housing, rather than receiving his inheritance that would then be dissipated on more expensive housing and eventually leave him in the same position. There was no specific evidence on the point, however, as David would not engage with the trustee, so this was only conjecture.
What next?
Mr Holland had held the inheritance for more than a decade and he wanted to be freed from his trustee obligations to David. Mr Holland applied to the High Court for an order2 asking for permission to distribute the inheritance to John’s children, on the basis that David was ‘missing’ and his entitlement should be disregarded. Mr Holland swore an affidavit that he had known Margaret and Ian Glue for many years, and they would have wanted their descendants to benefit from their estate. He thought that Margaret and Ian would have preferred that the beneficiaries of John’s estate (i.e. his children) receive the inheritance, than for the money to sit indefinitely in case David eventually decided to accept it.
The High Court noted that section 136 of the Trusts Act 2019 applied to beneficiaries who are ‘missing.’ It said that David was ‘decidedly not missing’; he could be found, but he simply would not engage with the trustee or accept his inheritance. Initially the court proposed that the money be paid to the Crown to be held in case David ever made a claim, but it was persuaded that this was not what Margaret and Ian would have wanted.
The High Court found that even though David was not missing, section 136 applied anyway because:
- The trustee had taken reasonable steps to bring the inheritance to David’s attention, over more than 10 years
- More than 60 days had passed since the trustee’s last attempt to contact David, and
- In the circumstances, it was reasonable to disregard David’s position and direct that the inheritance be paid to John’s estate (and therefore to his beneficiaries), as though David did not exist.
The lessons in this case
While it is unusual for a beneficiary to fail to claim their inheritance, it can happen, and they may have good reasons for doing so. That can, however, make things difficult for an executor or trustee who is holding funds on their behalf.
This case is a good reminder that a trustee who is in this situation may have other options and will not be forced to hold the funds indefinitely.
1 Re Holland [2023] NZHC 464.
2 Under section 136 of the Trusts Act 2019.