Tuesday, November 29, 2016

Montevento Holdings – A Practical Analysis

An earlier post has looked at various aspects of the leading trust case of Montevento Holdings – see -


As set out in earlier posts, and with thanks to the Television Education Network, today’s post considers some related practical issues in relation to this case in a ‘vidcast’ at the following link - https://youtu.be/kUQ9F-Fwow8

As usual, an edited transcript of the presentation for those that cannot (or choose not) to view it is below –

The case of Montevento Holdings was an estate planning exercise.

As seems to be the case quite regularly, dad died first. Under the estate plan for dad, he gave all of his shares in the trustee company to mum.

Then there was separately a principal power. The principal power being that whoever was the principal had the ability to hire and fire the trustee.

The principal power had two particularly key things in relation to it.

Firstly, the dad had amended the documentation to mandate how the succession of the principal role was to operate.

Namely, the succession was that it went to mum and then it went to mum’s legal personal representative (LPR).

The second point was that the principal could not be the trustee.

Dad’s approach was that he saw the trust as a ‘whole of family’ family trust. He apparently wanted it to be jointly controlled by the two sons.

So mum and dad had decided that under their wills they would give their shares in the trustee company to the two sons. However, mum under her will only put son #1 as her LPR.

Again, we go back to this mantra of reading the deed. Arguably here, no one had actually read the trust instrument.

So turn of events was this. Mum passes away. Yes, the shares go to the 2 brothers.

Son #1 reads the trust instrument, or probably his lawyer reads the trust instrument and says ‘you know what, you are the legal personal representative under your mum’s will, you are the principal of the trust, you may unilaterally decide who that trustee company is’.

‘The only thing you cannot do is you cannot appoint yourself as the trustee’.

Son #1 says ‘well, you know what, I'd like full control of this trust. I'd like to be able to take all the assets of the trust and do what I wish with them without having to refer to my brother who I don’t get on with’.

‘What I will not do is appoint myself as the trustee. What I will do is I'll set up a new trustee company with 100% of the shares in that company owned by me and I will be the sole director’.

‘Once I've taken those steps, and there's specific tax and stamp duty roll-overs available to let me do that, once I've taken those steps, I'll get all those assets out of the trust and give them to me. My brother can make his own arrangements’.

Brother #2 (son # 2) got word of this approach and tried to challenge the arrangement and said there's effectively a fiduciary duty.

That is, even though the trust deed said the principal couldn't be the trustee, surely that also included that the principal couldn't set up a sole director, sole shareholder company and just sidestep the prohibition.

The Supreme Court said yes, you're right son # 2, that’s not fair, you win.

The Court of Appeal said yes, you're right son # 2, that’s not fair, you win.

The High Court said you know what, this wasn’t a very complex trust instrument.

Mum could have quite easily got someone to read that for her, tell her that all of her objectives would be unwound if she only appointed son # 1 as her LPR. We think that what son # 1 has done is entirely in accordance with the trust instrument. Son # 1 wins; not son # 2. So the whole arrangement was held to be valid and son # 1 took the full control of the trust and son # 2 was left to make his own arrangements.