Incomplete or lost trust deeds – what does it mean and is it a big deal?

However, an oft quoted description of a trust states it is:

[an] obligation enforceable in equity which rests on a person (the trustee) as owner of some specific property (the trust property) to deal with that property for the benefit of a certain person (the beneficiary) or persons, or for the advancement of certain purposes. 

A trust deed outlines the terms of the trust, including the duties and powers of the trustee of a trust. Trustees administer the trust and have a wide range of fundamental fiduciary duties. Of particular relevance in relation to trust deeds is the obligation to keep the documents of the trust safe, and to act in accordance with the terms of the trust. A trust deed also identifies the beneficiaries of the trust and their rights. A trust deed is arguably the most important document for a trust. Despite this, we are seeing an increasing number of cases where the trust deed is incomplete or missing. 

An incomplete or missing trust deed means a trustee is unlikely to be exercising their power validly or they are operating blindfolded as they have no guidance on how to administer the trust. There can be serious consequences for the trustee and beneficiaries. Ordinarily the trustee has recourse to trust assets. That is, they may be reimbursed for costs and expenses incurred in the proper administration of the trust. Losing a trust deed is, at minimum, a breach of the duty to keep the documents safe, and, depending on how long the trust deed has been lost, may be a breach for failing to act in accordance with the terms of the trust. A breach in this regard may mean a trustee is personally liable without any recourse to trust assets. 

Ordinarily a trustee makes a determination to distribute income of the trust to a beneficiary. If this is not done in accordance with the terms of the trust, this may not be a valid determination. In the absence of a default beneficiary, the trustee may be taxed at 47% on that distribution. Typically, the beneficiary will already have been taxed on this distribution. As there is a time limit to amend an Australian tax return, if this has passed, it may mean the distribution is taxed twice. 

There are remedies available – the one that provides the most certainty is to seek a declaration from a court for advice regarding completion of the trust deed or the validity and terms of the trust. Where the trustee seeks and follows directions from the courts, they will be deemed to have discharged their duty and will not be personally liable. However, this will likely only be the case if the court is satisfied that the trustee has acted diligently and promptly in seeking directions.

Despite remedies being available, they can be time-intensive and costly processes. Prevention is better than the cure and having a complete copy of the trust deed will avoid you having issues.

Tony Nunes has over 25 years' experience in providing tax advice to clients, especially on issues affecting cross-border transactions, acquisitions and restructures, and on all aspects of structuring the ownership and financing of corporations and their operations.

Lakmini Mahipala has over 5 years of experience advising clients, ranging from private family groups to ASX listed companies, on a variety of issues including cross-border transactions (such as acquisitions, disposals and restructures), thin capitalisation, controlled foreign company provisions, and permanent establishments.