By Russell Cocks, Solicitor
First published in the Law Institute Journal
Many properties are held in the name of Trustees. Having access to the original Trust Deeds can present problems.
Property lawyers often have to deal with properties owned by trustees, either corporate or individuals, and this adds another layer of complication to what is regarded by the public as the ‘simple’ process of conveyancing. Often the client is not even aware that the property is owned by a trustee, or at best has a minimal understanding of the consequences of such ownership. The process is complicated even further when the transactions involves a financier, which is often the case.
The concept of a trust has been around for centuries, but its impact on day to day transactions greatly increased in the 1970s and 80s when accountants decided that the trust concept provided substantial advantages for the average taxpayer, partly as an asset protection mechanism but principally as a tax-saving device by distribution of income within the family. Hence the prevalence of the ubiquitous Family Trust that seemed to push its way between the Average Joe (or Josephine) and their assets. In fact, the asset protection motivation was quickly dissipated by financiers requiring personal guarantees in respect of trust borrowings and the tax benefits were whittled away by the imposition of maximum tax rates on income directed to infants. But like a runaway horse, once mounted, it is difficult to get off a Family Trust.
The Family Discretionary Trust typically consists of a trust deed with extensive Trustee powers recited in standard form and then a Schedule setting out the particulars relevant to the particular trust. Such documents were often purchased ‘off the shelf’, much the same as company incorporation documents, and as they were a mechanism designed principally for tax minimisation, little regard was had to the niceties of trust law. Four copies of the Trust Deed would usually be executed, with the accountant, lawyer and client having a copy each and the fourth copy generally staying with either the lawyer or the accountant. It would be fair to say that the execution process might not always be carefully undertaken and some of the four copies might remain unsigned. From time to time financiers might seek copies of the Deed and a prudent lawyer, accountant or client would hopefully ensure that the original Deeds were held in safekeeping but, as is fitting for a document that was designed to record a fantasy, that was often not the case.
Forty or fifty years after these structures were put in place, problems are arising when the original documents cannot be found. The purpose of the documents were to record the Trustee as the legal owner of assets, both real estate and personal property such as bank accounts and shares, and when it comes time to deal with these assets the Trust Deed establishing the Trustees right to deal may need to be produced. This situation was considered by the Supreme Court in Application by South Melbourne Continental P/L 2018 [VSC] 398.
This was a typical situation of a small business established by a patriarch thirty-five years previously that had been conducted successfully over those years, held substantial assets and was now ‘operated’ by a son on behalf of the family. But the Trust Deed could not be found and this presented problems in dealing with the assets and the business generally. The Supreme Court has a number of powers relating to trust property, including Order 54 Supreme Court (General Civil Procedure) Rules 2015 and an ability to make orders under the Trustee Act 1958. However, the Application was unsuccessful as the McMillan J. was not satisfied that all possible attempts to locate the Trust Deeds had been carried out and it may be concluded from the judgment that the powers vested in the Court will not be made available without extensive evidence relating to the original terms of the Trust Deed and the attempts to locate the documents.
This outcome may be contrasted with the successful Application in D.R.McKendry Nominees P/L 2015 [VSC] 560 where an argument based on the presumption of regularity, that does not appear to have been argued in South Melbourne Continental, was successful. A similar argument found favour with McMillan J. in a case concerning a lost Superannuation Deed in Re Thomson 2015 [VSC] 370.