A conflict within a family over a trust has escalated, reaching the apex of the judicial system as two offspring dispute the actions of their late father’s spouse, accusing her of working in her own interests. The issue arose when the stepmother appointed a self-directed corporation as trustee and subsequently distanced both herself and the children from the proceedings.
The litigation now before the Supreme Court follows unsuccessful attempts by siblings, Ken Leglar and Laiala Klaui, to have their stepmother, Maria ‘Marina’ Formannoij, found guilty of violating the proper purpose or committing a “fraud on power”.
The siblings maintain that Formannoij acted inappropriately when she took advantage of a clause in the trust deed to instate Kaahu Trustee Limited, a self-directed company, as the sole trustee. They argue that her actions, far from being acts of a responsible trustee, were self-motivated, and that the legitimacy of KTL’s appointment stands on shaky ground.
Formannoij, however, strongly contests the siblings’ accusations. She insists that the appointment of KTL was her only recourse following the death of their father Ricco Leglar in 2017 and the subsequent resignation of the remaining trustee.
The Kaahu Trust was established in 2008, a year before Legler and Formannoij’s marriage. The children were identified as discretionary beneficiaries, alongside Legler and Formannoij. Following the resignation of the original independent trustee, Formannoij found herself as the only remaining trustee, compelled by the trust deed to draft in another independent trustee.
At a loss to find a suitable individual, Formannoij, on the advice of her legal counsel, created KTL, assuming directorship while equal control was given to her attorneys. It was then that KTL was instated as Kaahu’s trustee and, on that same day in November 2019, Formannoij resigned from her trusteeship.
By March 2020, the siblings’ status as beneficiaries was revoked by KTL. The funds were re-allocated to Formannoij and she was declared the beneficiary to be held on the vesting day, the day marking the end of the trust.
In response to these developments, the siblings launched a legal challenge against their stepmother’s decision to appoint KTL, which they viewed as a “fraud on power”, executed under false pretenses.
Adding complexity to the saga, it appears that Kaahu is not the siblings’ only financial tie to their family. Horowai, a second trust, was established by their father, where they also stand as beneficiaries. There are substantial assets distributed between both trusts.
While concrete details were not disclosed at the hearing, indications suggest Kaahu trust property was valued between $10-$11 million when KTL was brought on board.
The siblings’ legal representative, David Bigio KC, made the case that Formannoij’s decision to appoint KTL was driven not by her duty to the beneficiaries, but by her desire to commandeer the trust for personal gain.
In response, Formannoij’s lawyer, Joshua McBride, defended his client, asserting that the allegations of improper intent were unproven. He presented Formannoij’s actions as a necessary measure to ensure her financial stability.
The siblings’ assertions were previously dismissed by the High Court in 2021, and again by the Court of Appeal last year, who concurred with the High Court’s ruling that Formannoij had acted within the trust deed’s parameters and had not committed fraud.
Despite these setbacks, the siblings are not wavering in their pursuit for justice. If they are successful at this ultimate stage, they seek to dethrone Formannoij and appoint a new trustee in her place.
However, despite the fierce battle being waged in court, Formannoij’s legal defense maintains that nothing justifies the siblings’ proposed course of action. The situation remains tense and continues to unfold.
