Amending Trusts. How hard can it be?
Recent cases have shown that it’s not always easy to amend existing trust provisions.
Getting it right the first time is essential.
We have seen over the years Court applications seeking to rely on State Trustee Acts to vary the terms of a trust. However, the power under the Acts is limited, and more often than not, Court applications fail because the proposed variations to the trust do not fall within the parameters of the legislation.
It’s now clear that it is not possible to rely on State Trustee Acts to amend provisions in the trust deed which beneficiaries or trustees consider limiting or needing improvement. In New South Wales, the Court can confer powers on trustees under in s81(1) of the Trustee Act 1925, where in the management or administration of a trust a sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure, or transaction (dealing), is in the opinion of the Court expedient but cannot be effected because the trust deed or law does not confer on the trustee the necessary powers.
For an application under s81(1) to be successful, two important elements are required.
- The amendment to the trust instrument must be for the purpose of a dealing; and
- the dealing must be expedient for the management or administration of the trust property.
The New South Wales Court of Appeal in Re Dion Investments Pty Ltd (2014) 87 NSWLR 753 (“Dion Investments”) found it was not empowered by s 81 to grant powers to trustees to amend trust instruments or their terms, but may only grant specific powers related to dealings which are considered expedient for the management or administration of a trust. The powers can only be given when they can co-exist with those conferred by the trust instrument. It found that the role of the trustee was to administer the trust as it finds it and the role of the trustee is not to improve the trust terms or fill gaps.
The recent Supreme Court of New South Wales case Cisera v Ciseara Holdings Pty Ltd  NSWSC 960 is another reminder of the limitations of the statutory power to vary trusts.
In Cisera v Ciseara Holdings Pty Ltd the plaintiffs, who are beneficiaries of the family discretionary trust Cisera Family Trust, made an application to the Court for orders which would in effect allow the trustee to extend the vesting date. The value of the trust was approximately $16million. The latest date on which the trust could vest is 1 January 2024 and there is possibility that if the trust vests on 1 January 2024, the beneficiaries could be minors. The minors would only become entitled if their father, one of the plaintiff beneficiaries, failed to survive the vesting date and the trustee did not exercise its discretion to wind up the trust before the vesting date.
The Court considered the Plaintiffs’ application under s 81 of Trustee Act 1925 (NSW) to extend the vesting date by a further 40 years.
The Court found that the proposed variations to the deed could not be considered a dealing. A dealing ordinarily is an action that occurs bilaterally and the extension of the vesting date would be unilateral in nature. It was therefore concluded that the proposed variation could not be considered a dealing as described in s81(1).
In terms of whether the proposed amendment is expedient in the management or administration of the trust, the Court considered the possibility of the trust vesting in minors at the last possible vesting date and the terms of the trust deed.
Justice Parkes stated that in determining what is “expedient” will depend on an analysis of the intentions of the settlor. At the time the deed was created, it was open to the settlor to set a vesting date much later than 1 January 2024 and the fact that this date was inserted was deliberate. Further, the inclusion of the children of one of the plaintiffs as beneficiaries only in the event of him dying before the vesting date was found to be consistent with an earlier vesting date. The Court also considered the impact the amendments would have on the administration of the trust and concluded if the vesting date was deferred for another 40 years further issues would arise in the administration of the trust.
It was ultimately found the plaintiff’s proposed amendments were not “expedient” as required by s 81(1).
Family trusts and testamentary trusts offer tax advantages as well as asset protection opportunities which make these structures attractive and effective for many individuals, families and businesses.
The cases highlight the careful consideration required when establishing trusts, whether by deed or by will and the need to get it right the first time.
Due to the impossibility of predicting the future, settlors and will makers should be cautioned against limited trust provisions and powers in favour of flexible provisions and fully discretionary powers.
If you require legal advice about an existing trust or creating a trust by deed or by will, please contact Marie Brownell at PC Legal Group [email protected] We would love to hear from you.