Losing a trust deed is not something anyone plans to do. Not only is a lost trust deed inconvenient it can also have serious consequences.
Even if the trust can continue operating, without having the trust deed to reference it may be very difficult, if not impossible, for trustees to be certain that they are administering the trust in accordance with the terms of the trust deed.
When a trust deed goes missing there is always a risk that the actions of the trustees may be open to challenge from third parties or government authorities that have dealings with the trust. In addition, the beneficiaries of the trust may challenge decisions that are made and trustees will not have the terms of the trust deed readily available to fall back on to justify their decisions.
Can the trust continue to operate if the deed is lost?
Practically speaking continuing to operate the trust in the absence of the trust deed is a short term solution at best. However, replacing a trust deed is not as simple as creating a new deed. Doing so may result in a new trust being created with consequent tax and stamp duty implications and every effort should be made to avoid this occurring.
Preliminary precautions
When a trust is created it is prudent to make multiple hard and digital copies of the trust deed of the executed and stamped trust deed. Copies (as well as the original) should be stored in secure locations.
Consider leaving a full copy of the trust deed with your lawyer or financial adviser. Many lawyers have a register of trust deeds, and this can be an excellent risk management tool to aid in guarding against lost deeds.
A record of where both the original and are copies are stored should also be kept.
Search, search and search again
Prior to taking steps to replace a trust deed you should undertake an extensive search to locate the original. Even if your search does not locate the original deed, evidence of the searches that you have undertaken may become relevant if you become involved in litigation in respect of the trust.
If you cannot find the trust deed, consider making enquiries with:
- Any other current and former trustees and directors;
- Beneficiaries of the trust;
- Any current and former professional service providers who may have a copy or have used the deed at some point. These could include lawyers, financial advisers including financial planners, accountants, auditors and business advisers. The Australian Taxation Office recommends checking with the last 2 or 3 accountants for the Trust;
- Banks, building societies, title registries; and
- Safes and other storage facilities where a copy may have been placed.
Help! I have searched everywhere but still can’t find my deed what do I do now?
If you have already conducted a thorough search and have not been able to locate either the original or a copy of the trust deed, the next steps you take will depend on the type of deed that has gone missing and the urgency of obtaining a replacement deed.
For example, it is very difficult to effectively manage a Self Managed Super Fund (SMSF) without a trust deed so you will need to act quickly to rectify the situation.
Options for dealing with a lost trust deed include:
- Court intervention – Asking the Court to confirm the trust deed or provide directions as to how the trust should be conducted in the absence of the trust deed is generally considered the safest and least risky option for the trustee as they can reference the orders made to support any decisions they make. Court intervention is also the most expensive option.
- Unexecuted copies of the trust deed confirmed by the Court – If you are able to locate an unexecuted and unstamped copy of the deed the Court may be able to confirm and ratify the copy in place of the trust deed. For this to occur you will need to produce evidence to support the fact that the copy accurately reflects the original deed including evidence that the trust was properly established, any terms of the lost deed, the assets that are in the trust fund and any searches already undertaken to locate the original executed deed.
- Executing a Deed of Variation – It is possible for beneficiaries, by agreement, to agree to a Deed of Variation. However, the cost and work involved in this option will increase significantly depending on the number of beneficiaries, possible future beneficiaries and if any beneficiaries are minors. This approach is also dependent on obtaining agreement from the beneficiaries on the terms of the original deed and being able to provide sufficient evidence of the terms of the original deed. The draftsperson must be careful not to inadvertently resettle the trust in varying it so professional legal assistance is necessary.
- Deed of Confirmation or Restatement – If a copy of the original deed is found it may be possible to restate or confirm the terms of the original deed.
- Terminating the trust and rolling over the assets – It may be possible to end the trust and roll the assets over into a new trust fund. This is particularly relevant for SMSFs and family trusts. However, potential problems with this approach include the potential to incur substantial Capital Gains Tax and stamp duty liabilities.
Seek legal advice as soon as possible
If you are dealing with a lost trust deed it is important to seek legal advice as soon as possible. Our experienced lawyers are able to assist you in deciding the most cost-effective option for your particular circumstances including the possible taxation implications of any approach, the responsibilities of the trustees and the rights of any beneficiaries to the trust.
If you or someone you know wants more information or needs legal help or advice, please contact us on 08 9336 6300 or email [email protected].