I lost my Trust Deed! Is this a problem?
Yes, but one you can attempt to remedy. How far you go down the path to a solution may depend upon the various risks, including lost funding, potential claims upon the Trustee, unhappy beneficiaries, financial relationship breakdowns taxation disputes and loss of business control when someone dies or loses capacity.
Why do I need the actual original Trust Deed – Isn’t there a Trusts Act that gives Trustee power?
Yes, in Queensland the Trust Act 1973 provides limited powers that the Trustee can rely upon. These are likely to be restrictive and not empower the Trustee to do the many things necessary to manage a trust effectively. This is heightened when the Trust manages a business, or perhaps you want to consider opportunities for streaming income or capital gains in line with Australian Tax Office requirements.
The flexibility and advantages of a discretionary family trust are lost if that very flexibility cannot be capitalised upon by the wording of a Deed. The disadvantages are heightened without a Trust Deed.
Can the Trustee be personally liable for actions taken on a ‘lost’ Trust Deed?
Yes. Imagine if a future beneficiary of the trust has complaints about the actions of the Trustee. What support will the trustee have in justifying their action or inaction, their powers and discretions? Who is to say that the steps taken are definitive. If a dispute arises between beneficiaries, trustees or independent parties such as financiers and the Australian Tax Office, the Trustee is in an increasingly tenuous position to defend its’ actions when they have no recourse to their governing document.
Surely, it doesn’t really matter – I have a pretty good idea of what the Trust said….
Whether you are the trustee, appointor, beneficiary, an advising Accountant, Financier, Solicitor or the Australian Taxation Office – the impact of not having even a copy of the specific Trust Deed creating the terms, powers and provisions of your Trust – are numerous. The financial and legal risk of continuing to act or advise upon a document that you have not seen is asking for trouble – perhaps your gambling spirit is high and your risk threshold low.
So, the question becomes, do you run the gauntlet and see how long you can go before a problem arises, do you attempt a reasonable and reliably documented reconstruction (based on consistent evidence), or do you attempt a documented reconstruction (signed by all parties), or go further and invest in an application for Court directions to clarify the matter. The risk/benefit analysis will determine what course is appropriate for you. The recent New South Wales decision of Sutton v NRS(J) Pty Ltd [2020] NSWSC 826 highlighted how even having a copy of the Deed does not always solve all problems.
Some of the issues that could arise (but are not limited to) include:
Will a loan ever be needed?
- Lenders are unlikely to advance funds to a trust where the original deed cannot be located
- Can the Trustee even engage in loan arrangements in the absence of an express power?
Death/Loss of Capacity Risks
- What happens on the death or loss of mental capacity of a controller of the trust (remembering that whilst many trusts are similar, they are all unique in their own way). Who is now in charge? If the wrong person/entity takes control, will those transactions be outside the power and therefore subject to retraction/costs implications?
Purported exercise of powers by Trustee that do not exist
- Is the Trustee acting on authorised authority or going outside their powers?
Who are the beneficiaries?
- Who are the class of people who can benefit from the Trust – and are there limitations that the Trustee needs to abide by?
Has the Trustee complied with their requirements as dictated by the Deed?
- Will a beneficiary claim a Trustee has failed in their obligations and duties, failed to consider the terms of the Deed, causing future difficulties to be magnified?
Are relationship disputes a potential amongst beneficiaries, trustees or appointors?
- Are any of the broad class of beneficiaries ever likely to encounter relationship problems, with property settlement disputes taking into account certain trust assets?
Can the business continue without access to funding, authorised attorney documents/other?
- Does the Trust purport to manage a business – what authority does it act upon, and what are the limitations?
What scope does the Trustee have to undertake steps without triggering a Tax Office ‘resettlement’ (do you know who the default beneficiaries are).
- Are any of the transactions undertaken by the Trustee likely to trigger a ‘resettlement’ of the Trust Deed and massive stamp duty implications (and how would you know without the Deed specifying terms of the Trust)?
Will a change in the terms of the Trust Deed be beneficial?
- Do you want to ‘vary’ the Trust (whether to play for future death, incapacity, relationship changes etc), or simply to update the Trust to gain maximum effectiveness from its’ income distributing flexibility.
Are taxation disputes a potential?
- Is it a possibility the Australian Taxation Office may wish to revisit the terms of distribution or streaming, to ensure compliance with powers and effectiveness of steps taken. The case of Kelly v The Federal Commissioner of Taxation [2012] FCA 423, demonstrate the Commissioner’s preparedness to seek clarification from the terms of documents relevant to a transaction. In that case the Commissioner queried tax deductions claimed by the Trustee, and offered the taxpayer an opportunity to prove that the deductions were allowable. It was found that they were not deductible, despite legislation suggestive of this, as the terms of the relevant documentation determined otherwise. If you are unable to provide this documentation, then you are at a loss before you even begin negotiations.
- What gamble do you take that the Australian Taxation Office will never have any dispute about the taxation outcomes of transactions within your Trust and/or simply wish to audit you?
Is the Termination or Vesting Date a long way off….or not?
- When does the Trust terminate? Have the parties been blindly distributing assets in a manner not sanctioned as the trust vested at an earlier date – and what tax implications will that trigger?
Obligation upon Trustee to Keep Proper Records
- How will the Trustee fulfill some of the many obligations of the role, when proper records cannot be kept as the authorising Deed is absent and/or presumptions are being made as to its’ terms?
Are the Trustees casual about potential liability claims?
- Does the Trustee have a low threshold for risk when it comes to transactions likely to put them in direct risk of claims for breach of power, purported distributions to non-beneficiaries, etc.
Do you invest in finding solutions to these issues now, at lesser expense than if you waited until the proverbial fan is hit? The answer is up to you, guided by your legal and taxation advisers, taking into account all the specific circumstances surrounding your Deed, its’ creation, its’ future and your peace of mind.
What is my best solution?
Options:
- Keep looking!! Often these are found at the back of a folder where they ‘should not’ have been or, amongst irrelevant papers.
- You need this document, or at the very least a copy! Places to consider looking include:
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- Ask your existing and earlier Accountants if they have a copy of the Trust Deed.
- Ask your current and previous financial institutions/banks may have kept a copy;
- Did you use a finance broker – what records have they kept?
- Did you engage a Solicitor (whether for a property purchase, lease, family law dispute, debt collection or other matter) – could they have a copy?
- Did your interactions with a managed investment fund or financial planner require a copy of the Trust Deed?
- Was the document ever emailed to you in a scanned version – can you locate that email? Did you provide a copy to potential beneficiaries, a business colleague or family?
- Attempt to reconstruct the document
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- A reconstruction where a copy or form of the original deed can be found, and the parties to the Deed are available to ‘confirm’ the deed is quite common.
- Otherwise the options here are to reconstruct the document from other available sources of information, with a risk that you are acting beyond the scope of the original instructive document, triggering stamp duty obligations, mis-using your discretionary powers, and laying the trustee open to personal liability. The consent of all potentially effected parties would be ideal.
- Alternatively, you could gather the information necessary to attempt a ‘reconstruction’ of the document, and where the implications of failing to seek Court approval are high, invest in getting the matter resolved before things get progressively worse. So, the Trustee invests in professional legal and taxation advice and research, and applies to the Court for a direction (whether it is limited to one particular aspect of the Trust Deed or the entire Deed). The success of any application would depend upon the strength or otherwise of all types of evidence produced to the Court.
For further information or advice, reviews and Trust Deed updates, contact Tammy Parsons or David McKewin from our Private Wealth Team on 07 3648 9900
