The problems with losing a trust deed are self evident. A trust relationship must be run through a trust structure, with a trustee. A trustee’s most important duty is to obey the terms of the trust. It is the trust deed that sets out the terms (also known as the governing rules) of the trust. Therefore, without a trust deed, a trustee cannot determine that it is fulfilling their duties.
In the first instance to approach the Supreme Court in respect of a lost trust deed the first step before approaching the court is that every effort should be made to find the trust deed. This includes contacting all accountants, auditors, financial advisers, lawyers and bankers who have ever had any dealings with the trust deed. They might have a copy of the trust deed (or even the original). Accordingly, a copy (or even a template that was probably used in the original) might be found. The court should then be approached seeking an order regarding administering the trust deed according to the copy. However, this can be a time-consuming, expensive and ultimately uncertain exercise. A court’s typical position is that where an original written document is not produced and secondary evidence is relied upon, there must be clear and convincing proof not only of the existence, but also of the relevant contents, of the writing. Common law needs to be examined to determine the standard of proof which is sufficient. Documents that can be relied upon may be an unexecuted copy of a trust deed, correspondence between parties involved in drafting and execution. However, in reality, individuals are very reluctant to spend the time and money to approach the court due to costs and time requirements.
Replacement of a lost trust deed
Executing a new or replacement trust deed by a trustee is regularly not an available option. Such an action would likely result in the resettlement of the trust. Resettlement occurs when the trust established under the lost trust deed is deemed to have terminated and is succeeded by a new trust created under a new trust deed. Furthermore, resettlement is typically considered a disposal of the trust assets, which may give rise to significant capital gains tax and stamp duty consequences.
Deed of Ratification
The trustee may consider entering into a deed of ratification if a copy of the executed deed can be found and there are no disputes regarding the matter. A deed is used to document the agreement between the trustee and all other parties involved, confirming that the copy of the deed accurately represents the terms of the trust and indemnifies the trustee for administering the trust accordingly. Preferably, the deed is executed by all parties involved with the trust, including the trustee, settlor, appointor or guardian, as well as all primary and discretionary beneficiaries. Nevertheless, a deed does not represent a perfect solution for the trustee. It may not be accepted by all third parties (including financial institutions) as an adequate to substitute for a lost original and may be subject to challenge by beneficiaries, particularly those who were not parties to the deed. Additionally, there is a possibility that the deed may be regarded as a resettlement, which could give rise to adverse tax consequences for the trust.
Terminating the Trust
Other avenues that may be pursued are terminating the trust. Terminating the SMSF is not a perfect solution and may cause uncertainty, tax implications such as stamp duty as assets not held in a trust structure. Alternatively a new document could be drafted and parties can execute a new trust deed of variation putting in place the powers, duties and obligations mutually agreed upon, this will constitute a legally binding new trust relationship. A skilled Asset Protection and Trusts Lawyer in our practice may be able to consider your factual matrix advise you in this regard.
SMSF and Lost Trust Deeds
If the trust deed is a SMSF, there are financial reporting obligations. A financial report must be prepared for distribution to the members for the purpose of fulfilling the trustee’s financial reporting requirements under the SMSF’s governing rules. Without seeing the SMSF’s governing rules, the auditor is unable to properly make his or her declaration. Further, the trust deed determines the payment of death benefits from a superannuation fund, not the deceased’s will. Accordingly, it is vital upon death to have access to the trust deed to determine who may receive death benefits.
Pavuk Legal can assist you with your estate planning needs, including trust deeds, wills, power of attorneys, enduring guardianships and how to appropriately deal with your superannuation.
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