Lost trust deeds? Here's what you need to know

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Lost trust deeds

This article gives you an overview of why it’s important to have your original trust deed and what to do in the instance of lost trust deeds. For further clarification and assistance, contact our team of commercial lawyers today.

Overview:

Why is it important to hold the original trust deed?

Trustees should hold the stamped original trust deed for the following reasons:

  1. If there is a dispute as to the terms of the trust deed (an unstamped trust deed cannot be used as evidence in a Court: s 304 of the Duties Act 1997 (NSW)). It is like a blank piece of paper as far as the judge is concerned. It is true that an unstamped trust deed can be used for certain purposes but an unstamped trust deed cannot be used in evidence;
  2. Where the dutiable property is held by a trust and there is a need or desire to change the trustee (the NSW Office of State Revenue (‘OSR’) will require the stamped trust deed);
  3. Third party financiers (including banks) often request the production of the trust deed so that they can check to see that the trustee is authorised to borrow the funds and enter into the proposed security documents.

Trustees should hold a copy of the trust deed even if it is unstamped for the following reasons:

  1. A trustee has a duty to ascertain the terms of the trust and to administer the trust in accordance with the terms of the trust deed;
  2. Nineteenth century and early twentieth-century cases show that a trust can only carry on a business (or do anything else for that matter) if it is permitted (either expressly or impliedly) by the trust deed. How do you prove that the trustee is authorised to carry on a business or do whatever else, if there is no trust deed? Queensland and Western Australia (but no other States or Territories) give limited rights to a testator under a will or the settlor of a trust to carry on a business for a period of up to 2 years but only for the purpose of winding it up. See the Trusts Act 1973 (Qld) and the Trustees Act 1962 (WA);
  3. In the event of an audit, it will be difficult to satisfy the ATO as to certain aspects of the trust if a signed copy of the trust deed is unavailable;
  4. The trust deed cannot be varied unless the trustee knows the terms of the variation power. It is likely that the trustee and the appointor will not be able to be changed without access to a signed copy of the trust deed because the trustee will not know the rules pertaining to these changes.

However, a lost trust deed is a common issue. So, below are the rules relating to holding a stamped or unstamped copy of the deed.

What happens if you find a stamped copy of the lost trust deed?

If the trustee has found a copy of the stamped trust deed, then the way forward is relatively easy.

It is generally a good idea to create a “replica original” trust deed. You never know when a financier might want to sight the stamped original.

In NSW, a replica trust deed can be created by the settlor and the trustee when the terms are exactly the same as the old trust deed. The trustee then completes the Replica Instruments Form (ODA 019). A copy of the stamped original trust deed has to be annexed to the Form.

The Form requires details of the OSR receipt number for the stamp duty paid when the trust deed was originally stamped. This will appear within the stamp duty on the copy of the stamped trust deed. Where this can be made out, then only $50 duty is payable on the replica deed (s 272 of the Duties Act 1997 NSW). The duty is payable by any party to the replica deed. The Commissioner of Stamp Duty will stamp a replica deed in a way which denotes that it is a replica.

What happens if you find an unstamped copy of the lost trust deed?

In NSW, an original trust deed can be stamped out of time (after 3 months from date of first execution).

The procedure is that the trust deed is lodged at the OSR together with a statutory declaration verifying the assets in the trust when the trust was established. This is a reference to the settlement sum, which is generally $100 or so.

Duty on the trust deed is likely to be the stamp duty on the initial declaration of trust. In NSW, this is $500 on and after 1 January 2009, plus interest on that sum. If the trust deed was established before the Duties Act 1997 (NSW) came into effect, then the duty will likely be $200 plus a $200 penalty.

Where only an unstamped copy of the trust deed is found, the practice of the OSR is to stamp the copy under s 299 of the Duties Act 1997 (NSW), as if it were an unstamped original.

The OSR often requires evidence to prove the date that the trust was established. Evidence that can be used to satisfy the Commissioner includes a statutory declaration from the trustee or settlor, and attaching the financial accounts and bank statements of the trust from its inception.

What happens if you find an unstamped unsigned copy of the lost trust deed?

If the parties (i.e. the settlor and trustee) sign an unstamped and unsigned copy of the trust deed after it is discovered as such, then “ad valorem” stamp duty will be likely to be payable. This is because an acknowledgement of a pre-existing trust can constitute a declaration of trust. Under section 8 of the Duties Act 1997 (NSW), a declaration of trust is dutiable as such, regardless as to whether any trust interests are created.

It is always important to check whether the trust has any dutiable property. For example, it may be a family investment trust holding only listed shares. If that is the case, then there may be no stamp duty issue on the signing the trust deed now, other than the stamp duty outstanding on the initial declaration of trust plus interest.

There would only be a capital gains tax issue if this causes a resettlement of the trust under CGT Event E1. If the unsigned copy of the trust deed can be shown to reflect the terms of the trust, then there’s no capital gains tax issue because no new trust is being declared. All that is taking place is that the terms of the trust deed are being affirmed.

An alternative way of proceeding is to arrange for the settlor (if they are still alive) or the trustee to sign a statutory declaration affirming that the unsigned unstamped copy comprises the whole of the trust deed. The unsigned unstamped copy of the trust deed would be annexed to the statutory declaration.

The NSW OSR will stamp the statutory declaration as a copy under s 299 of the Duties Act 1997 (NSW) provided that the Commissioner is convinced that the annexed unsigned copy is wholly or substantially the same as the original signed trust deed. Annexing the financial accounts and bank statements to the statutory declaration to show the establishment date of the trust will help in this regard.

The duty payable would be the duty for the declaration of trust (i.e. $200 or $500 depending on when the trust was established) plus outstanding interest or a $200 penalty depending on when the trust was established.

What to do if trust deeds are lost and no copies can be found

If no copy of the trust deed can be found, then the trustee is operating blindfolded and has no guidance.

There are essentially only two options. The trustee:

  1. Continues to operate the trust in accordance with the limited powers contained in the Trustee Act 1925 (NSW). This alternative is really only available for investment trusts. If the trust is not an investment trust, it is a dangerous and imprudent course of action for any trustee to pursue this alternative.
  2. Applies to the Supreme Court under s 81 of the Trustee Act NSW for an order that the trustee be able to adopt a new restated trust deed. This is usually only resorted to where the trustee is virtually totally ignorant of the detailed terms of the trust. It is the most costly option. Therefore, the trustee has to try to find out at least the general terms of the trust deed. One obvious way might be to identify a similar trust deed from the same provider which was supplied at or around the time the trust was established.

Where the trustee has no knowledge whatsoever of the terms of the trust deed and in particular as to whether it contained a variation power, s 81 may be of doubtful assistance.

A successful application under s 81 is not likely to be an easy exercise, which is why a lost trust deed is such a tricky problem.

The law in this area is far from settled. Case law indicates that where the original trust deed has been lost and secondary evidence is tendered in court to establish the contents of the lost trust deed, there must be clear and convincing proof not only of the existence of the trust but also the relevant contents of the trust deed.

If the application is successful, a restated trust deed ordered to apply under s 81 will provide certainty for the administration of the trust moving forward.

No resettlement of trust occurs where either of these options is undertaken.

Other Options

Other options which could be suggested but which are problematic include:

  1. Executing a Restatement Deed or Deed of Confirmation.
  2. Having all the beneficiaries agree to vary the rules of the trust to incorporate a new written trust deed.

Restatement Deed or Deed of Confirmation

There are two ways that this approach is implemented:

  1. The trustee and settlor execute the Restatement Deed; or
  2. A person connected with the trust (eg. settlor or the trustee) signs a statutory declaration affirming the terms and existence of the trust, attaching to the declaration a summary of those terms as far as they can be related.

Unfortunately, whilst the Restatement Deed or statutory declaration may provide a trust deed for the trustee and beneficiaries to follow, neither of these alternatives address the stamp duty issue as to whether the original declaration of trust was ever stamped.

So unless you can prove that the terms of the new restated trust deed are the same as those which applied in the lost trust deed, then there is always a risk of the OSR considering the arrangement as a resettlement.

Conclusion

Most of the above options are risky and unpalatable. The take-home message is to keep the original, fully signed and dated trust deed under lock and key and make as many copies of it as you may need.

At Owen Hodge Lawyers, we always strive to provide you with the best personal and business legal advice – no matter your issue. We specialise in a range of law matters, and have a blog that offers in-depth and comprehensive articles. Learn about if a Will is lost what happens and much more on the Owen Hodge blog today.

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Leigh Adams
Special Counsel
Owen Hodge Lawyers

 

 

 

 

 

 

 

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