Discretionary trusts and SMSFs are often used as wealth management tools for businesses, families and individuals.
But if the deed constituting the terms of that trust is lost, serious problems may arise.
True, there is no problem for the trust relationship - that stays on foot.
But administering the trust relationship can become difficult and uncertain. The problems become even more fraught when the deed is for a trading trust, and the business is active and long-established.
Drafting a deed afresh is a no-go - you risk creating a new trust, or a resettlement, with potentially significant tax consequences.
Not to mention that any amendment (eg in re Cavill Hotels Pty Ltd [1998] 1 Qd R 396), appointment of a replacement trustee (H Ford & W Lee, Principles of the Law of Trusts (Loose-leaf) at [9050]) or appointment of a new beneficiary (eg Ramsden v FCT [2005] FCAFC 39; BRK (Bris) Pty Ltd v FCT 2001 ATC 4111) could be declared void ab initio (from the start), and likewise distributing to a non-beneficiary risks a claim for breach of trust.
Where to look?
Your first step is to undertake searches to try and locate a copy of the original deed, or reliable evidence of its terms.
Avenues to pursue include:
• Trustee: The trustee bears the primary obligation in relation to the whereabouts of a trust deed, because a trustee has the duty to ascertain the terms of the trust: Hallows v Lloyd (1888) 39 Ch D 686. Have all current and former trustees and directors of corporate trustees been contacted?
• Settlor: Has the settlor of the trust (if known) been approached? They may be deceased - what about the executor of their estate who should have control of their personal papers?
• Trust Provider: More complex deeds may have been drafted by a firm of solicitors or accounting firm. Try them, and any successor partnerships or incorporated legal practices. Sometimes this turns up an unsigned copy of the execution copy of the trust deed prepared by the firm, or they may be able to provide a copy of the trust deed precedent that was current at the date of establishing the trust, and it can be reconstituted from there. The application form, file notes or other contemporaneous documents and even the recollection of relevant persons may also be found which would permit reconstitution of the terms of the precedent trust deed.
In Sugden v Lord St Leonards (1876) LR 1 PD 154, the Court stated:
“… if the evidence of the contents of a long and complicated [document] were given by a professional man who had himself drawn the instrument or upon one or repeated occasions had had the opportunity of reading, that would, under ordinary circumstances, be more satisfactory than the evidence of a non-professional person, above all the evidence of a lady [sic].”
• Relatives: You can also make inquiries of all adult relatives of the trustee, and those who may have had an association, such as a family business, or lived in the local region.
• Beneficiaries: Inquiries should also be formally made of those thought to be beneficiaries of the trust. In turn, their personal accountants and lawyers should also be contacted. If one of the beneficiaries has since died, inquiries should also be made of their legal personal representatives (executor/administrator) and in turn their lawyers. Since the purpose is not only to try to locate the original or copy of the trust, but (should it become necessary) to identify sufficient grounds to enable the trust's terms to be reconstituted by secondary evidence, the past pattern of distributions disclosed in minutes and tax returns should identify some of the beneficiaries within the class of beneficiaries.
• Financiers: Finally, try to locate current and former banks, financiers and brokers who may have obtained a copy of the deed as part of any finance application. A property ownership search could demonstrate the identity of all properties acquired by the trust, and in turn identify any mortgage providers and conveyancing solicitors of whom final inquiries can be made.
We Found Something - What Now?
If you are lucky, and you find an executed and stamped copy of the trust deed, that copy (and copies of that copy) should constitute adequate evidence of and stand as a sufficient substitute for a lost original trust deed for most purposes (including litigation): see e.g. ss 47 and 48 Evidence Act 1995 (Cth). A deed of confirmation can be executed referencing the original deed and its terms.
With less certain documentary trails, deciding whether to approach the Court for assistance will in part be a function of the size of the trust estate. In small estates or estates with passive investments, it may be sufficient to accept a degree of restriction and administrative uncertainty and to administer the trust in accordance with trust law and the relevant Trustee Act.
But if the trust is carrying on a business, in most cases the restricted powers will be inadequate (and section 57 of the Trustee Act, which provides some statutory assistance for the purpose of winding up the business, may be unpalatable). And for larger and more complex trusts, if there is an unsigned execution copy or reconstructed copy of the trust deed, it is usually appropriate to apply for a court order that the unsigned execution copy or reconstructed copy of the trust deed stand in place of the terms of the original trust deed.
The courts will be looking for “clear and convincing proof not only of the existence, but also of the relevant contents, of the writing”: Maks v Maks (1986) 6 NSWLR 34, 37. The likely success of such an application is dependant on the evidence that can be adduced as to the terms of the original trust deed (and amendments). The less evidence of the terms of the trust the less likely such an application will be successful.
Documentation of your enquiries and responses is essential to establish a proper audit trail, should an application be required to be made to the Court to establish that sufficient inquiries and investigations have been made to no avail.
Affidavit material by the settlor (if alive), the trustee or the original and current directors of a corporate trustee, and the principal beneficiaries may be prepared and filed in support of the originating motion. The matters dealt with in the affidavit material may then traverse:
• the due and valid establishment of the trust;
• the terms of the trust;
• the continued administration of the trust;
• the assets that constitute the trust fund;
• the purpose of the trust and how the proposed orders will give effect to that purpose;
• the enquiries undertaken to locate the original trust deed; and
• any explanation for the loss of the original trust deed.
But ... we found nothing!
There will be cases where no trace of the original trust or its terms exists.
Other cases will vary in degrees of uncertainty as to the terms of the trust and each will turn on its own facts.
Your problem is that if the Court has no evidence as to the likely terms of the trust on which to base a declaration, an application under the Trustee Act could be unsuccessful.
Your available options could end up very limited: the limited powers under the Trustee Act will only get you so far, and you may need to face up to winding up the trust.
In whatever scenario, you will need detailed legal, accounting and taxation advice before settling on the appropriate course.
Dominique Hogan-Doran SC is an Australian barrister, specialising in complex commercial and financial disputes and investigations.
Liability limited by a scheme approved under Professional Standards Legislation.