Easy to misplace, hard to replace: The costs of a lost trust deed

Trusts have become a ubiquitous part of the financial world and are used in a range of situations – whether as a vehicle for investment, a structure from which a business operates or to shelter an inheritance.  Depending on the context, a trustee of a trust must take a considered approach to decision-making to ensure they are meeting their obligations both to the beneficiaries of the trust and observing the terms of the trust.

When determining how a trustee should act in any given situation, the answer always starts in the same place: the trust deed.  The trust deed not only establishes the trust, it also sets out the terms and rules for the most critical elements of a trust, such as who the beneficiaries are, how are assets contributed to the trust, how income and capital is to be distributed, who chooses the trustee and what happens when the trust is wound up.  

If a trust deed (or deed varying the terms of the trust) is lost, how can the trustee be confident that they are acting appropriately?  The answer, according to the Court, is... "They can’t".

The consequences of a lost deed are starkly illustrated in Vanta Pty Ltd v Mantovani (2023), which dealt with a family trust that was settled in 1976 and administered by a husband and wife until their passing, after which, control passed to their children.

A dispute between the siblings led to requests for documents and accounts relating to the trust assets, leading to the realisation that the original trust deed had been lost.  After extensive searches, the only documents available were tax returns, financial records and a Schedule to the trust deed containing limited details identifying the settlor, date of trust, trustee, appointor and beneficiaries.

In a 2021 decision, the Court held that despite the information available in the schedule, without secondary evidence, it was insufficient to show that the trust was in existence, which meant that the trust failed altogether for uncertainty.  The Court held that the trustee’s obligation to act in strict conformance with the terms of the trust deed is “perhaps the most important duty of a trustee” and, without a trust deed, it is impossible for the trustee to discharge this obligation and as such must be held to be acting in breach of trust.

The Court took the position that any decision made by the Court permitting the trustee to continue administering the trust assets would require the Court to effectively permit and sanction further breaches of this obligation. The failure of the trust had the effect of revesting the trust property to the settlor.   In addition to the eye-watering tax consequences of the trust failing and revesting, if the settlor had since died, the trust property would have formed part of the settlor’s estate. The 2023 decision on appeal reversed these conclusions but reinforced the grave consequences of a lost trust deed.

The Court of Appeal held that:

• There was sufficient secondary evidence to establish that the trust subsisted and remained valid;
• The Court has the power to give directions and make orders in relation to the administration and duration of the trust, the scope of the trustee’s management powers and any other orders to ensure that the trust is administered as intended;
• The Court should be reluctant to declare a trust’s failure for uncertainty, as it is preferable to conclude that a trust remains in existence and valid so long as this is consistent with the accepted evidence of the key parties.

While the 2023 decision confirming the existence of the trust represents a “win”, considering the costs of the initial trial and appeal, as well as any further applications to the Court for orders as to the administration of the trust – all of which would have been avoided if the original trust deed had been stored safely and securely.

While Vanta represents some hope for those dealing with a lost deed, it further highlights the importance of document management and reinforces that the most foundational duty of any trustee – the one from which all other trustee obligations stem – is to read and act in accordance with the trust deed.

Memories can deteriorate, firms can close and the professional advisors involved with the preparation of the documents can retire or pass away. Photocopies of documents are often destroyed as non-essential documents, when they ultimately could be the key to proving a trust’s existence and confirming its governing rules.

To avoid the risk of losing a trust deed, it's crucial to store the document securely and in either a fireproof safe, with a solicitor, or using a secure digital document storage service. If you become aware that a trust deed is missing, steps should be taken as soon as possible to rescue the position. 

If you have concerns about a missing deed, please contact Patrick Robertson at probertson@pwg.com.au or call the Partners Legal Solutions team on (03) 8517 0150.

 

This information is general in nature and is provided by Partners Wealth Group. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.