Thinking of making a change to your trust? Best practice: use a deed

The recent case of Batmor Mortgages Pty Ltd v Arcuri ^[1] acts as a reminder of the considerations which need to be properly addressed when changing the trustee of your unit trust. These considerations equally apply to any change to other types of trust, such a discretionary trust, hybrid trust or even a self-managed superannuation fund (including a change to the terms, powers or trustees).

Overview

A change to a trust will only be valid where that change is effected in accordance with the trust deed's requirements. When effecting a change to a trust, the parties must review those requirements carefully. They will be different from deed to deed, and may be different within a deed depending on the nature of the change.

While the procedures for varying a trust, or making a change to the trustee of the trust, will often be reasonably clear, it is important to always check the trust deed to ensure the correct procedure is followed. For example, where you propose to vary a term or power under the trust deed, you need to check the provisions of the deed to ascertain:

• does the power of variation extend to all provisions in the deed or only limited provisions;
• who has the power to make the change;
• what are the procedures for variation;
• is it necessary to obtain the consent of any party; and
• are there any specific restrictions on the power of variation.

A failure to comply with procedural requirements may result in a purported variation being ineffective.

A trust instrument (including a deed of variation) will generally be executed in the form of a deed. Historically, a deed could only be amended by deed, however the power of amendment in a trust deed now is more commonly drafted broadly so that a written or oral amendment may be effective.

As another example, pursuant to the Cleardocs Unit Trust Deed, the removal of a trustee and appointment of a replacement trustee must be effected first by way of a special resolution of the unit holders then by an applicable deed. Alternatively, the Cleardocs Discretionary Trust Deed provides that the appointor, or where there is no appointor the trustee may, appoint an additional or replacement trustee at any time by a written statement to that effect.

Form of amendment documentation? A deed is best

While changing a deed by resolution or written statement is permitted under a deed, and at law, effecting a change by way of deed will eliminate various issues and ambiguities which may otherwise arise.

For example, if a change is to be effected solely by persons in a meeting, this introduces all the potential complications which surround meetings (such as properly convening the meeting, obtaining a quorum, conducting votes, eligibility to vote and the effectiveness of resolutions). Preparing a deed ensures that all parties have formally turned their mind to the relevant change and that, by validly executing it as a deed, each party has properly consented to it.

Having a written deed as evidence of a change to a trust also offers clarity and ease of reference to third parties such as lenders, stamp duties office or other regulatory bodies.

Recent case reminder

In Batmor Mortgages Pty Ltd v Arcuri the Court had to consider successive changes to the trustee of a trust. The complex structure of the unit holdings of the trust, the solvency of the relevant persons and the validity of the resolution (and as such the validity of the removal) were all matters which were necessary to be determined by the Court.

Should the parties have completed the change to the trust by way of deed, as was the case in another instance in this matter, it may have eliminated the need for litigation arising from ambiguities in relation to the variation.

Cleardocs packages and legal advice

Cleardocs provides deed packages for various trust changes, which can be used depending on the type of trust and the factual circumstances driving the change. In some more complex circumstances it may be more appropriate to seek independent legal advice.

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Commercial team.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of trust topics.

Order Cleardocs trust packages

• Discretionary (Family) Trust
• Discretionary Trust — excluded beneficiaries
• ABN Registration — trusts
• Unit Trust — fixed
• Unit Trust — non-fixed
• Hybrid Trust
• Change of Trustee Discretionary Trust
• Change of Trustee Unit Trust
• Discretionary Trust Distribution Minute