September 4, 2020
A trust deed will outline, amongst other things, who benefits from the trust and set out how the income and capital is dealt with. Even though we live in a digital age, it is important that the trustee not only stores the original deed safely, but has copies of the signed trust deed safely stored.
If the deed is lost, it can create quite a headache for the trustee and the beneficiaries. As set out in our prior post (see here), there are many fact patterns and issues to consider where a trust deed is lost.
ARE BANKS OR OTHER THIRD PARTIES INSISTING ON AN ORIGINAL TRUST DEED?
One issue emerges when third parties insist on being provided with an original signed trust deed. Banks in particular may call on the original deed to be produced under “know your customer/KYC” principles, anti-money laundering requirements, or even just their internal policies.
This complex matter of lost trust deeds has been the subject of a recent decision in the New South Wales Supreme Court. The trust in question had its bank accounts frozen indefinitely and was unable to open new bank accounts until the bank could sight the original trust deed. The client only had a copy of the signed original deed and it was presumed the original signed deed had been lost. Unfortunately, due to the insistence and perseverance of the bank, the client was left with little choice but to head to court, which it did.
There are many other interested parties that may cause this same level of concern that a trustee may deal with, including a land titles registry, the ATO, a state revenue office, or even a contractual counterparty.
A DECISION MAKING MATRIX
If you or your client have lost the original trust deed, don’t panic; heading to court may not be your only option, such as in the above mentioned NSW case example. Depending upon your circumstances and the type of trust, there may be a range of options available.
OKAY, YOU’VE SAID THERE ARE OTHER OPTIONS – WHAT ARE THEY?
If you find yourself in a position of not knowing where your original deed is , you have a few options to consider.
Of course, these options are not exhaustive, but include the following:
- prepare a deed of confirmation/restatement to restate the terms of the trust;
- prepare a deed to adopt new trust terms (by way of variation to the terms of the original trust);
- take steps to terminate the trust entirely and transfer the assets to a new entity; or
- seek advice or an order from the court regarding the validity and terms of the trust.
It should be noted that these options aren’t as straight forward as they seem. There are associated risks and potential tax and duty consequences for the trustee and beneficiaries. And depending on the party you are dealing with, not all approaches may be acceptable.
SO MANY OPTIONS! BUT, HOW DO I KNOW WHICH ONE I NEED?
You need to consider two things:
- what is your situation? – we think there are 3 broad situations; and
- what type of trust do you have? – the type of trust affects the possible solution or compromise what might work.
What is your situation?
We’ve given you some options that you may be able to utilise. But how do you know which option is best suited for you?
Your first step should be to consider your circumstances. From here, it is much easier to identify which option you need. Usually, there are three common scenarios when the original deed is missing, these are:
- missing the original deed but have a copy of the signed deed;
- missing the original deed but have a copy of the unsigned deed; and
- missing the original deed and have no signed or unsigned copies.
Having a copy of a signed deed is usually quite straight forward to deal with. Things start to become trickier when you only have a copy of an unsigned deed. The most difficult is when you have no copy at all. But, even if you have no copy, you still have options available to you.
Take, for example, another New South Wales matter where the original deed was lost and no copies could be located. A letter written by an accountant that dealt with terms of the original trust deed was found to constitute the ‘presumed trust’ so the trustee could continue with trust’s operation.
What type of trust do you have?
The type of trust you have can also affect which option is most suitable for you.
Things can be relatively smooth and easy going if you have a trust with a limited class of beneficiaries, where all the beneficiaries have capacity and can agree on the terms which apply to the trust.
However, things can become more complicated where a trust has a wider class of beneficiaries which include beneficiaries who do not have capacity (e.g. they are children or beneficiaries lack capacity through mental impairment) or where you have beneficiaries that do not agree with the terms of the trust deed or the proposed terms to be adopted for the trust.
Due to the fixed nature of some trusts, and the restricted class of beneficiaries, there may be simpler outcomes for deeds that relate to:
- units trusts;
- bare trusts; and
- Self-Managed Super Funds (SMSFs).
HOW CAN WE HELP YOU?
If you have lost your original trust deed we can assist you by:
- using the decision making matrix summarised above:
- to advise which scenario you are in;
- to assess which option you have available to you;
- estimate the likely costs for each option;
- if you have been operating without an original trust deed, assessing and mitigating the potential risks the trustee may face (tax issues, claims by disgruntled beneficiaries, etc.);
- prepare and draft any documentation you may require to continue the correct administration of the trust; or
- assist you in making the relevant application to a court.