Do you know what you can do, or what steps should you take, if you have lost a trust deed?
Losing a trust deed can give rise to significant tax and commercial challenges that can be both difficult and time-consuming to resolve. Without a trust deed, for example, a trustee cannot carry on business without a power contained within the deed. There may also be complications with securing financing, as banks typically require a copy of the deed for verification. These are just a few of the problems that you may face if you have lost a trust deed. In this article, we will examine some of the potential issues, and their likely solutions, when it comes to a lost trust deed.
The Issue of a Lost Trust Deed
There are countless issues posed if you’ve lost a trust deed. For example:
- Trustees may be exposed to a breach of trust claims as there will be no guidance on what can and cannot be done if the trust deed is lost.
- No trust streaming may occur.
- As a trust deed outlines foreign beneficiaries (if there are any), there may be surcharge land tax and duty issues.
- The trust cannot be varied without a trust deed as there will be no outline of variation powers.
- There will be issues changing trustee and appointor.
And those are just some of the challenges.
In general terms, a lost trust deed renders the trust unable to continue operating in its current state.
Therefore, it is in your best interests to securely keep the trust deed safe and secure to minimise the chances of losing it. But let’s say you haven’t managed to keep it safe, or it’s gone missing. Here are some key questions to understand.
Can the Trust still be Managed Properly if the Deed is Lost?
Effectively, a trust cannot be properly managed if the trust deed is lost. The powers provided by the Trustee Act may be in force, but they can lead to issues if the trust wants to carry on business or borrow from a third-party lender. Trustees would also not be able to self-contract or act where there is a conflict of interest between the trustee(s) and beneficiaries.
Can the Problem be Fixed with a Deed of Restatement?
A Deed of Restatement, if executed to replace the lost trust deed, is likely to trigger a resettlement. Even if there is no resettlement, duty may be triggered as a declaration of trust (which will happen even if the trust is pre-existing).
So in this case, even though the trust will essentially be reinstated after the re-settlement, it won’t be without consequences, such as unwanted interruption to the administration of the trust and additional, often considerable, financial costs.
How ‘Lost’ Is the Deed?
If there is still a copy of the signed and stamped trust deed or a copy of the deed in some form, there may be some solutions still available that do not involve resettlement. If there is no copy but only a template version of the trust deed, or if there is no copy of the deed at all, there will be very real issues triggering a resettlement and duty by entering into a deed of restatement.
The Truly Lost Trust Deed
If the trust deed is truly lost without a trace, you should consider transferring assets out of the trust. There is a 50% discount on Capital Gains Tax (CGT) and there are small business CGT concessions available alongside small business restructure rollovers. You should also consider any losses that could minimise the tax costs of transfer.
Seeking Judicial Advice
It may be worthwhile to seek judicial advice from the Courts if there is sufficient secondary evidence to prove the contents of the lost trust deed. The benefit is that there will be no resettlement; as the court declaration does not alter the legal rights but gives effect to existing rights and the Commissioner of Taxation accepts court approved variations as not constituting a resettlement.
However, judicial advice is a costly solution and there must be a good level of secondary evidence to satisfy the court that the deed did exist and that it is truly lost.
Re Porlock Pty Ltd Case
In 2015, a trustee approached the Supreme Court of New South Wales regarding a lost trust deed, in the case of Re Porlock Pty Ltd (2015) NSWSC 1243. The trust was established in 1957 and the trustee sought advice as to the terms on which it holds trust property. However, the NSW court lacked the authority to recreate a trust deed.
It was presented that a retired accountant had previously written a letter that made reference to some terms of the Trust. The letter was the only secondary evidence available in regards to the Trust’s terms. The court commented on the scarcity of guidance on what is to be done when one cannot find a trust deed.
Based on the secondary evidence, the court ruled the trustee was justified in managing and administering the trust based on the terms outlined in the accountant’s letter.
This case is important in emphasising the significant role that secondary evidence can play in addressing the situation of a lost trust deed. However, it is critical to note that it is usually not a simple task to resolve the issue.
In the above example, and other similar situations, if not for the existence of that letter or other substantial forms of secondary evidence, it could likely result in a very different outcome for that trustee and the future dealings of their trust. In many cases, the outcome may still not be favourable, despite having secondary evidence.
Keep Your Trust Deed Safe
Ideally, you should take due care to ensure that the original trust deed is kept safe and secure and avoid any potential issues. While there may be some remediation options available in certain circumstances, there will likely be significant monetary and time costs in order to pursue those, with no guarantee of a successful outcome. The potential problems, issues and complexities that arise from a lost trust deed is something that you would no doubt prefer to avoid.
Get Expert Help
If you have lost your trust deed and require expert advice, or for assistance with drafting and safely storing new or existing trusts deeds, contact our team of experienced lawyers and accountants at The Quinn Group by submitting an online enquiry, calling us on 1300 QUINNS or +61 2 9223 9166 to arrange a teleconference or appointment.