Trust deeds are vital for managing your trust assets, a fact that was emphasised recently in a judgment by the NSW Supreme Court in Sutton v NRS(J) Pty Ltd.[1] In this case, during routine bank procedures, the bank discovered the trustees only had access to a photocopy of the trust deed and froze their account. The trustees then made an application to the Supreme Court to use the photocopy to administer the trust

Why did this end up in court?

In 1972, a discretionary trust was established which then lay dormant for 35 years until a portfolio of the property was transferred into it in 2007. It was at this point that the trust began to generate a substantial amount of income for its beneficiaries in accordance with the original trust deed. The trust account was frozen when the original trust deed couldn’t be found, despite a signed photocopy being provided.

Sutton applied to the Supreme Court requesting that the photocopied deed be accepted as a true copy of the original trust deed. The court directed the trustees that it was appropriate for the trust to be administered in accordance with the photocopy as though it were a genuine copy (noting that the court did not grant the specific order sought). This is because the court uses declarations to formally determine a legal state of affairs rather than matters of fact. The court considered it inappropriate to make such a declaration around the status of property unless all parties had been heard, instead opting to provide advice under its power found in s63 of the Trustee Act 1925 (NSW). The direction permitted the trustees to administer the trust as per the photocopy.

Which factors did the court consider?

Parker J noted that there was no need to prove by inference if the formalities had been complied with since the photocopied deed had been signed. There is evidence that over the last 35 years, the parties had acted in accordance with the terms outlined in the trust document. This made it “overwhelmingly likely” that it would be identical to the original.

What to do if my trust deeds are lost?

Recent cases are reviving the presumption of regularity. [2] The presumption of regularity is that it will be presumed that deeds have been validly executed and made unless there is some contrary evidence.

  1. a) If there are other similar trusts entered into at the same time:

As the first course of action, approach all third parties for a copy of the trust (Banker, accountant, lawyer). If this fails, approaching the firm that drafted the deed may make it possible to accurately determine the terms of the trust deed by reference to the version in print at the time. Where an almost identical copy can be found, prepare a deed of confirmation or variation to restate the terms of the trust. This will allow the trust to be administered in accordance with the terms of the other trust.

       1. b) Where there are no copies and no evidence of an identical trust

In Sutherland v Woods the NSW Supreme Court considered an incomplete SMSF. Sutherland contended that the fund was valid because parties had acted as though it was correctly established and therefore, it must have been at some point. Importantly the parties had exhausted the enquiry options available to find the deed including contacting the bank, the ATO and the titles office. The court agreed and held that it was possible to infer that the trust had been created. Similarly, in Re Thomson[3], which dealt with amending deeds, the court applied the presumption to infer that the missing deeds indicated the true state of affairs based on the actions of the parties.

For the presumption to apply, it is necessary that a considerable amount of time must have passed since the deed was made with no other way to prove the validity of the deed. Furthermore, there must be evidence indicating the deed was valid and that the parties acted as though it was reasonable. The Supreme Court may then make an order to adopt a new restated trust deed.

It is also possible to administer the trust in accordance with state legislation if the court is too expensive or not worthwhile. This may be a useful option for simple trusts as it allows for basic powers of administration with minimal obligations.

Key points:

Whether you are a company or an individual, ask your law firm to hold your trust deeds in their files. Be sure to note their location with the people that need to know, for example, your family or directors. Ensure your lawyer also notes the location of the trust deed on their records to ensure it can be located in the future to avoid stress and costs.

If a trust deed is lost, recent case law indicates the presumption of regularity will permit the existence of the deed to be inferred based on the actions of the parties if all actions to find the deed have been exhausted.

[1] Sutton v NRS(J) Pty Ltd [2020] NSWSC 826.

[2] Sutherland v Woods [2011] NSWSC 13.

[3] Re Thomson [2015] VSC 370.

 

**Assisted by; Jacqueline Healy**

 

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