Lost trust deeds are an increasing problem. Many businesses or investments, including SMSF’s, are operated through or by trusts which are controlled by a Deed. Losing a trust deed has significant implications for the Trustee and the beneficiaries of the trust. In this article, we look at how to protect your trust deed and what your options are if it has been lost.
Trusts are created by a Deed prepared by a solicitor or obtained by accountants from commercial document providers.
Annual decisions are usually made as to income distributions with the aid of tax advisers, without actually referring to the trust deed to ensure the decision is in accordance with the terms. This is unwise. It is important to refer to the terms of the deed to ensure that those to whom distributions are to be made, are actually beneficiaries.
Having the trust deed is essential to the proper administration of the trust. It sets out the terms and conditions of the trust. The primary obligation of the trustee/s, whether an individual or a corporation by its directors, is to be thoroughly acquainted with the terms of the trust and all documents associated with it and to adhere to those terms.
The trustee owes fiduciary duties to all the beneficiaries and potential beneficiaries of the trust, so making the correct decisions is critical.
A growing number of court decisions reveal that many people have been unable to locate the original trust document or even a copy. Frequently with intergenerational changes, the younger generation members cannot locate the document created by their parents.
Sometimes an original, and sometimes a copy, of the trust deed may need to be produced to beneficiaries, banks, the ATO or to state revenue authorities.
Here are some of the scenarios we receive from clients regarding location of a trust deed:
Always ensure you place the trust deed in safekeeping. This should be the original with “wet” signatures. If can then be produced if required.
In 2020, a bank was conducting a “Know Your Customer” (“KYC”) exercise and wanted to sight an original of the Deed. Because the original Deed could not be produced, the bank threatened to freeze all the bank accounts of a major trading business. The trustees had to make an urgent application to the Supreme Court to authorise the use of a copy.
If you cannot locate an original signed copy, then having a copy with signatures may be beneficial in many situations.
In 2021 a family, wishing to wind up the trust and distribute the assets, could not locate even a copy of the deed. An application was made to court and a copy of the solicitor’s own trust deed prepared around the same time, using the same precedent, was produced to show what would have been the terms. This was accompanied by a letter from another solicitor in the 1980’s giving advice about the trust.
In a Victorian case in 2021, involving a family dispute, where no original or copy Deed could be produced, the court ordered that the trust failed and that the substantial assets all be vested back in the Settlor (the deceased mother) under a resulting trust.
It is wise to make multiple copies of a trust Deed, including digital copies and record where or to whom copies are sent. It is also suggested that the photocopies be “certified copies” to add further weight to their authenticity.
If you cannot locate a trust deed, it is important to search for it thoroughly and to record what searches you have made by retaining copies of emails or letters. This would include all family papers.
Amongst the external enquiries to be made, are requests to:
The courses open to you if the original Deed cannot be found may depend on whether you have a photocopy, signed or unsigned, or no copy at all.
This is not a wise move because the primary duty of the trustee is to know the terms of the Trust and act in accordance with the terms.
This can trigger adverse tax consequences for capital gains tax and stamp duty as it may be a “re-settlement” of the trust assets.
If there is a copy, signed or unsigned, of the critical Deed or any amending Deed, it is possible for the trustee and others to execute a deed of confirmation. But there is no guarantee that a third party, excluded potential beneficiary, a financial institution or government agency such as the ATO, will accept it.
This is clearly the safest but most expensive option. In South Australia, because of the provisions of Section 59C of the Trustee Act, the court has wider powers to remedy the situation than in other states.
If you are unable to locate the original trust deed or any copy of it, or for further about any issue to do with your trust deed, please contact us.