Can Parents Owe Fiduciary Duties to Their Adult Children? A Key Supreme Court Ruling

In a landmark decision, A, B and C v D and E Limited as Trustees of the Z Trust (SC 106/2022) [2024] NZSC 161, the New Zealand Supreme Court addressed a critical question: under what circumstances, if any, does a fiduciary relationship exist between a parent and their adult children? This case examined the scope of fiduciary duties within family dynamics and also reinforced the legitimacy of using trusts to shield assets from potential claims under the Family Protection Act 1955.

Case Background

The appellants, Alice, Barry, and Cliff (names changed), suffered severe abuse at the hands of their father, Robert, during their childhood. After leaving home as teenagers, they had little to no contact with him, yet continued to endure the consequences of his abuse.

In 2014, Robert (name changed) transferred significant assets, including his home and shares worth approximately $700,000, into the Z Trust. The appellants were not beneficiaries of this trust. Upon Robert's death in 2016, his estate contained only $47,000. The appellants filed a claim under the Family Protection Act, seeking to be provided for from Robert’s estate. They also initiated legal proceedings against the trustees of the Z Trust, alleging that the asset transfers violated fiduciary duties owed to them by their father.

The High Court initially sided with the appellants, finding a breach of fiduciary duty. However, this decision was overturned by the Court of Appeal. The appellants then took their case to the Supreme Court.

Supreme Court Decision

The Supreme Court unanimously dismissed the appeal, ruling that Robert did not owe fiduciary duties to his adult children at the time he transferred the assets to the trust. The key findings of the Court were as follows:

• Fiduciary Relationships During Childhood

The Supreme Court confirmed that a fiduciary relationship exists between parents and their minor children. This arises from the parent’s caregiving responsibilities and the trust and confidence children must place in their parents. However, the Court clarified that this relationship terminates when the child reaches adulthood and the parent ceases to have caregiving or decision-making responsibilities.

• No Fiduciary Duties in Adulthood

The Court rejected the appellants’ argument that the fiduciary relationship continued into adulthood due to the abuse and resulting vulnerability they suffered as children. It held that imposing fiduciary duties based on past wrongs or vulnerability alone would fundamentally alter the principles of equity. A fiduciary relationship must be based on an ongoing connection, not past events.

• Legitimacy of Trust Transfers

The Court found no breach of fiduciary duty in Robert's transfer of assets to the trust. Since the fiduciary relationship had ceased long before these transfers occurred, Robert was under no obligation to retain assets for his adult children.

Conclusion

The Supreme Court's decision in A, B and C v D and E Limited affirms that New Zealand courts will not recognize a fiduciary relationship between a parent and an adult child unless there are ongoing caregiving or decision-making responsibilities. It underscores the principle that fiduciary duties are relationship-based and cannot be imposed retrospectively or solely on the basis of vulnerability.

The ruling also highlights the robustness of trusts as an estate-planning tool. It confirms that, when properly established, trusts can effectively protect assets from claims under the Family Protection Act, even in cases involving contentious family dynamics.

This case serves as a reminder of the importance of careful estate planning and the legal safeguards trusts provide against potential claims. Understanding the limits of fiduciary relationships and the strategic use of trusts can be essential in achieving peace of mind and asset protection.

If you are considering how best to structure your estate or protect your assets, our team at Ross Holmes Virtual Lawyers Limited can provide expert advice tailored to your unique circumstances. Contact us today to ensure your estate is secure for generations to come.