Options to minimise risk if you lose a trust deed

Overview

The ability to comply with a trust deed and to confidently determine the terms of a trust is a fundamental and integral part of a trustee’s duties; yet, many trustees lose their trust deeds. Recent case law has shed light on the options available when a trust deed is lost. The implications of a lost trust deed can be disastrous. Without a trust deed, every trustee action or decision can be called into question.

Recent case law

Vanta Pty Ltd v Mantovani [2023] VSCA 53 (Vanta) – only the schedule to the deed was found

In Vanta the only page that was available for the Mantovani Family Trust was the schedule containing minimal information for the trust, such as naming the trustee, settlor and some beneficiaries. Initially the Court found the trust failed and relevant assets that were contributed to the trust would go to the contributor’s estate. On appeal it was held that the trust still existed, however, the trustee was directed to seek judicial direction on the continued administration of the trust.

While Vanta indicates that a trust can continue with minimal information to evidence its existence, it does not provide any helpful guidance on how the trust can actually continue to be administered.

Sutton v NRS(J) Pty Ltd [2020] NSWSC 826 (Sutton) – photocopy of deed was accepted

In contrast to Vanta, the earlier case of Sutton shows that where sufficient evidence of the terms of a trust exist, an appropriate outcome can be obtained from a court.

In Sutton, while the original trust deed could not be obtained, the trustee did have a photocopy of the signed deed. The Court exercised its advice power under the relevant state Trustee Act to confirm that the trustee was justified in administering the trust on the basis that the photocopy was a true copy of the original deed, allowing the trustee to administer the trust on those terms.

In Sutton, it was a bank that raised concerns with regards to having an original trust deed as part of their own requirements, showing that trust deed issues can arise due to acts of third parties.

Re Barry McMahon Nominees Pty Ltd [2021] VSC 351 (Re Barry) – more investigation needed

Another important case is that of Re Barry.  In this case, the original trust deed could not be located, although some documents including a later deed of variation were available. The trustee here sought declarations from the Court that it could adopt a new trust deed.

However, the Court in Re Barry ordered that insufficient enquiry had occurred to properly establish key points relating to the existence of the trust, and the trustee was ordered to conduct additional searches to file further evidence with the Court.

Options

These decisions reinforce the importance of having original executed copies of all trust documents.

Where a trustee does not hold the original executed hardcopy trust deed, the first step should be to carry out extensive searches to find any evidence of the terms of the trust. Evidence of the trust’s existence and relevant terms, as far as possible, will be necessary for any court assistance.

This could include contacting all accountants, lawyers, auditors, financial planners, banks and financial institutions that may have a complete copy of the deed as part of their records. It could also involve contacting the initial deed supplier to determine whether they have an unexecuted copy or template of the relevant document. Evidence from parties relevant to the trust, such as the asserted settlor, trustee and beneficiaries would also need to be considered.

Option 1 – Supreme Court application

If a thorough search is undertaken and the original executed document cannot be found, the trustee should consider making an application to the Supreme Court for an appropriate declaration or orders in the relevant jurisdiction. This option is likely to place the trustee in the best possible position if a favourable decision is made. The outcome of court proceedings will likely depend on the available evidence provided and where there is a photocopy, template or similar evidence of the terms of a trust, there is a reasonable chance of a helpful outcome. However, such an approach will involve significant cost and effort, which many trustees may not be willing to accept.

Option 2 – Confirmatory documentation

Where an approach to the courts is not considered appropriate, the trustee can consider the use of other documents confirming the terms of the trust or otherwise rectify apparent issues. Again, the type of documents that might be possible will largely depend on the available evidence that can be gathered. While the aim of such documents is to place the trust in a better position, this is unlikely to be a perfect solution. Moreover, extreme care is needed as varying the terms of a trust may give rise to tax and duty implications and should only be undertaken by a lawyer with expertise in trusts, tax and duty law. Thus, a trustee would generally be accepting risk by proceeding without expert advice and, in appropriate cases, without seeking court input. If a court considers a trustee has acted inappropriately, it can make orders removing the trustee from that office.

Conclusions

Naturally, a prudent trustee should seek advice on how to manage a trust where there is any doubt regarding the terms of a trust. Where one or more documents are missing in the trust’s document history, expert legal advice should be obtained.

Resolving uncertainty now may cost some time and money. However, moving forward without a trust deed may prove substantially more expensive especially if any issue or dispute arises in the future.

Any actions or transactions undertaken by a trustee without a trust deed may be at risk. In particular, the ATO would want to be satisfied that distributions of net income are to relevant beneficiaries in respect of each financial year and otherwise in accordance with the trust deed.

Naturally, if there is a likely dispute, then legal advice should be obtained to determine the best way forward.

Related articles

• A 1976 deed can’t be found … trust fails as a result!
• Sutton v NRS(J) Pty Ltd [2020] NSWSC 826: Lessons for managing lost trust deeds
• Recent judgement has important implications for SMSFs with incomplete deed histories
• Dealing with a lost SMSF trust deed
• DBA Lawyers’ lost SMSF deed service

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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2001 (Cth).

Note: DBA Lawyers presents monthly online SMSF training. Our next update is on 9 June 2023 with Daniel Butler presenting. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.

By Shaun Backhaus, Senior Associate ([email protected]) and Daniel Butler, Director ([email protected]), DBA Lawyers.

DBA LAWYERS

19 May 2023