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updating your trust deed – it’s sometimes harder than it looks

27 May 2021
cathy russo kate archer
Read Time 4 mins reading time

It is common practice for advisors to recommend an amendment to the terms of trust deeds from time to time. This is generally to take account of matters such as changes of law, a need to expand trustee powers or a desire to change the trustee. Significant care needs to be taken in this process to strictly follow the terms of the trust deed to ensure the action is valid. Whilst many law firms and providers of “off the shelf” trust deeds have embraced plain English drafting in the last few decades, there are still thousands of trust deeds in use that contain archaic terminology. Which, if not read and interpreted correctly, could result in this type of action by the trustee being invalid.

In a recent example of this, what should have been a simple change of trustee has uncovered multiple variations to the trust and (subsequent changes of trustee made in reliance of these variations), potentially being invalid due to the use of one innocuous word in the power to amend in the trust deed – “hereinbefore”.

In this example, the amendment provision in the trust deed granted to the trustee the power “to revoke, add to, release, delete or vary all or any of the trusts or powers hereinbefore declared ……”.  The plain and ordinary meaning of hereinbefore is ‘before this point in the document’.  Accordingly, the use of the word ‘hereinbefore’ in the power to amend has unintentionally restricted the ability to amend the trust deed only to those clauses appearing before the amendment provision which, unfortunately, in this case, excludes all of the trustee powers, which are the most common clauses requiring amendment in order to meet requirements of financiers and other third parties.

The matter is further complicated for this client as this trust deed also included a prohibition on the trustee being a beneficiary of the trust. Notably, this prohibition was in a clause that came after the trustee power to amend, and therefore could not be validly amended. Many years ago the appointor decided to replace the corporate trustee with the primary beneficiary. To ensure this was valid, the trustee purported to amend the trust deed to remove the restriction so that the primary beneficiary could act as trustee and would not be precluded from receiving trust distributions.  Unfortunately, the implication of “hereinbefore” being included in the power to amend was not picked up and our client is facing the possibility that many years worth of trustee actions are potentially invalid. Our team of expert trust lawyers identified the issue when we were asked to assist with a change of trustee and we are now working with the client to resolve the matter.

Many believe that amending a trust deed is a simple process and too often, it is done by accountants and even lawyers who don’t give proper attention to whether the proposed amendment is actually possible, especially where the trust deed is an older deed that contains language which is not as commonly used nowadays. Extreme care should always be taken when amending a trust deed to not only ensure that you don’t inadvertently give rise to a ‘resettlement’ of the trust which can have dire tax and duty consequences but also to ensure that the variation will in fact be valid and enforceable.

Macpherson Kelley has commercial and tax lawyers who are experts in dealing with trusts.  Please contact one of our team if you are planning to amend a trust or if you would like us to review your trust deed.

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updating your trust deed – it’s sometimes harder than it looks

27 May 2021
cathy russo kate archer

It is common practice for advisors to recommend an amendment to the terms of trust deeds from time to time. This is generally to take account of matters such as changes of law, a need to expand trustee powers or a desire to change the trustee. Significant care needs to be taken in this process to strictly follow the terms of the trust deed to ensure the action is valid. Whilst many law firms and providers of “off the shelf” trust deeds have embraced plain English drafting in the last few decades, there are still thousands of trust deeds in use that contain archaic terminology. Which, if not read and interpreted correctly, could result in this type of action by the trustee being invalid.

In a recent example of this, what should have been a simple change of trustee has uncovered multiple variations to the trust and (subsequent changes of trustee made in reliance of these variations), potentially being invalid due to the use of one innocuous word in the power to amend in the trust deed – “hereinbefore”.

In this example, the amendment provision in the trust deed granted to the trustee the power “to revoke, add to, release, delete or vary all or any of the trusts or powers hereinbefore declared ……”.  The plain and ordinary meaning of hereinbefore is ‘before this point in the document’.  Accordingly, the use of the word ‘hereinbefore’ in the power to amend has unintentionally restricted the ability to amend the trust deed only to those clauses appearing before the amendment provision which, unfortunately, in this case, excludes all of the trustee powers, which are the most common clauses requiring amendment in order to meet requirements of financiers and other third parties.

The matter is further complicated for this client as this trust deed also included a prohibition on the trustee being a beneficiary of the trust. Notably, this prohibition was in a clause that came after the trustee power to amend, and therefore could not be validly amended. Many years ago the appointor decided to replace the corporate trustee with the primary beneficiary. To ensure this was valid, the trustee purported to amend the trust deed to remove the restriction so that the primary beneficiary could act as trustee and would not be precluded from receiving trust distributions.  Unfortunately, the implication of “hereinbefore” being included in the power to amend was not picked up and our client is facing the possibility that many years worth of trustee actions are potentially invalid. Our team of expert trust lawyers identified the issue when we were asked to assist with a change of trustee and we are now working with the client to resolve the matter.

Many believe that amending a trust deed is a simple process and too often, it is done by accountants and even lawyers who don’t give proper attention to whether the proposed amendment is actually possible, especially where the trust deed is an older deed that contains language which is not as commonly used nowadays. Extreme care should always be taken when amending a trust deed to not only ensure that you don’t inadvertently give rise to a ‘resettlement’ of the trust which can have dire tax and duty consequences but also to ensure that the variation will in fact be valid and enforceable.

Macpherson Kelley has commercial and tax lawyers who are experts in dealing with trusts.  Please contact one of our team if you are planning to amend a trust or if you would like us to review your trust deed.