Lost Trust Deeds – What are your options?
A fundamental rule for both lawyers and advisers alike is to always thoroughly read and understand the provisions of the deed when dealing with trusts. However, complications often arise in situations where the trust deed cannot be found. Losing or misplacing a trust deed does not only induce stress and anxiety for both the trustee and trust members, but often leads to substantial legal expenses for rectification. The misplacement of a trust deed, compounded by a lack of secondary evidence can lead to questions over the validity of the trust. This is predominantly due to uncertainty and the inability to effectively administer the trust.
What is the Trust Deed?
A trust deed is the foundational document that sets out the terms and powers of the trust which must be strictly followed. It establishes all key roles of the Trust, including the trustee and beneficiaries, and often also nominates other key roles such as appointors. The trust deed also prescribes the relevant powers of the trustee, as well the entitlements of the beneficiaries to receive income and/or capital of the Trust. The originally executed trust deed plays a critical role in validating all decisions and distributions made by the trustee. The secure safe keeping and access to the trust deed chain are part of the basic duties of the trustee.
The Trustee Duty
A trustee is required to maintain proper account of the records of the trust, including a copy of the original deed and all subsequent amendments/variations. The failure to conduct this duty properly can lead to the trustee being held personally liable to account for any relevant loss. While technological advancements have simplified the ability to store and access electronic copies of trust documents (such as electronically signed deeds and variations), advisors and clients often find themselves in the uncertain position of attempting to locate copies of the original executed trust deed when prompted by questions from a lawyer or bank.
What if the Trust Deed is lost?
Losing or misplacing a trust deed can cause serious issues for the administration of the trust, including:
the inability to determine the terms of the trust, including the classes of income and capital beneficiaries;
a bank will be prevented and restrict the trustee from opening and operating bank accounts as well as obtaining any necessary finance;
the trustee will encounter challenges with dealing with the Land Titles Registry;
the trust will be unable to guarantee the validity of any subsequent deeds of variations, appointments or retirements of appointers and trustees.
The practical solution of simply executing a new deed in place of the misplaced deed is not possible. Doing so will likely result in the resettlement of the trust. Resettlement occurs when a trust is varied or amended to the extent that it becomes a new trust. A trust resettlement will generally amount to a deemed disposal of the trust assets, potentially triggering stamp duty and capital gains tax.
Contact third parties
As a preliminary step, we recommend contacting all relevant third parties who have had dealings with the trust, including lawyers, accountants, bankers and financial advisers. In addition, it may be worthwhile to contact the party who drafted the original deed to enquire if they hold a copy or record of when the trust deed was released. Exercising a simple search is the easiest and cheapest first step to locate a missing deed.
Deed of ratification
If the trustee can locate an unexecuted copy of the deed and the matter is otherwise uncontroversial, the trustee can consider entering a deed of ratification. While this option aims to confirm and restore the terms of the un-signed trust deed, it is not without its limitations as there remains a resettlement risk.
Judicial advice and direction
To maximise certainty and protection for the trust, a trustee may choose to apply to the courts to obtain judicial advice and directions addressing the lost trust deed. Once the Court has handed down its finding, the trustee will then be protected for any subsequent administration of the trust pursuant to the Court’s directions. While this option is the safest mechanism to protect the trustee from liability, it is important to be aware of the substantial legal costs involved, especially in instances where the application is contested.
While past rulings by the Victorian Supreme Court have had cast significant concerns on trustees, the recent Court of Appeal case of Vanta Pty Ltd v Mantovani [2023] VSCA 53 (Vanta) offers a degree of reassurance to trustees by confirming that the absence of a deed will not automatically result in the failure of a trust.
In Vanta, the Court of Appeal was satisfied that secondary evidence (including the schedule of the trust deed, financial reports and tax returns) identified the essential terms of the Trust. The Court of Appeal was also satisfied that the ‘three certainties test’ was met, that is:
Certainty of intention;
Subject matter (trust property); and
Objects.
As a result of this decision, the trust did not fail for uncertainty however given the lack of evidence concerning the powers of the trustee, the trustee would require additional guidance from the Supreme Court to determine the appropriate course of action in managing the trust. We will provide a further update on Vanta once a further decision has been made by the Supreme Court.
Key takeaways
The obvious first step is to store the original trust deed in safe custody with the lawyer or accountant and maintain electronic copies of all documents.
If there are issues with locating the deed, it is essential to be proactive and mitigate risk by being aware of the actions you can take to rectify a misplaced or lost trust deed. A cautious trustee may seek advice and direction from the court. However, this can mean a costly and complicated process, particularly if the trust deed is disputed.
Ultimately, advisors to trustees should implement robust management systems to mitigate the risk of trust failure in the case of document misplacement.
If you require any assistance concerning the administration of your trust, please get in contact with the below:
Alasdair Woodford
Principal
T: 03 5225 5217 | M: 0436 456 144
E: awoodford@ha.legal
Joseph Flanagan
Senior Associate
T: 03 5226 8504 | M: 0491 307 550
E: jflanagan@ha.legal
Tayla Berger
Senior Associate
T: 03 5226 8559 | M: 0407 825 365
E: tberger@ha.legal
