What should you do if you have lost your Trust Deeds?

A trust deed is a crucial document that sets out the explicit terms of trust arrangements and its governing rules, allowing a trustee to fulfill such a duty. Given the importance of the deed, a lost deed will create significant issues for trust and its trustee.

Trustees have a fiduciary duty to keep the deed of the trust safe and familiarise themselves with the terms of the trust – see Hallows v. Lloyd (1888) 39 Ch D 686. Losing a trust deed is at the minimum a breach of the duty to keep the documents safe and potentially a breach of failing to act in accordance with the terms of the trust. Such a breach can potentially mean a trustee becomes personally liable.

This article gives an overview of why it is important to safeguard the original trust deeds and what to do in circumstances of lost deeds. The most common scenarios we encounter are:

1. Finding unstamped copy of the trust deeds
2. Finding unstamped and unexecuted (unsigned) copy of the trust deeds
3. Lost deeds

A trust does not cease to exist even though the trust deed is missing. The trust relationship will continue as long as there is a trustee holding trust property on behalf of the beneficiaries. However, the trustee’s ability to administer the trust may become problematic when the particular terms that have been recorded in a trust deed have been lost.

1. Finding unstamped copy of the trust deeds

Stamp duty is a state-based tax and therefore applies differently in different states or territories of Australia and trustees need to determine whether they need to pay duty by contacting the relevant revenue authority or seeking advice from their lawyer or accountant.

If stamp duty applies, trustees must apply to their relevant State or Territory Office of Revenue to have the trust deeds stamped, usually within:

• 90 days from the date of first execution in NSW at a cost of $500
• 30 days from the date of first execution in VIC at a cost of $200
• 60 days from the date of first execution in NT at a cost of $20

As at the date of this article, stamp duty is not payable on the declaration of trust in the ACT, QLD, SA, TAS and WA.

Even if you do not need to pay duty, you may need to lodge the trust deed with the relevant revenue authority so they can mark that no duty is payable.

If stamp duty on trust deeds is required and the deed is not stamped within the relevant time frame, there may be late fees and penalty interest payable to the relevant revenue office. Trustees may also have major tax issues when dealing with the trust assets and properties if deeds are not stamped.

2. Finding unstamped and unexecuted copy of the trust deeds

One option is for the settlor (if they are still alive) or the trustee to sign a statutory declaration affirming that the unexecuted unstamped copy comprises the whole of the trust deed, annexing the unexecuted unstamped copy of the trust deed to the statutory declaration. Provided that the Commissioner is convinced that the annexed unexecuted copy is wholly or substantially the same as the original signed trust deed, the revenue office will stamp the statutory declaration as a copy under s 299 of the Duties Act 1997 (NSW)

In this case, the duty payable would be the duty for the declaration of trust plus outstanding interest or penalty.

The trustee can enter into a Deed of Restatement when there are copies of the signed original trust deed, however, this can cause some major tax and/or duty issues by triggering resettlement.

If the trust has properties or other specific assets held as assets, an “ad valorem” stamp duty could be imposed, which is a tax that is based on the assessed value of a property. Furthermore, if the trust is deemed to have resettled, then the trustee purports to reconstitute the trust deed, in which case:

• all assets are treated as having been disposed of by the original trust and settled on the new trust, in this case capital gain tax event E1 occurs,
• income tax being payable on non-capital assets, such as plant and equipment and trading stock, and
• any losses in the trust are forgone and cannot be carried forward to offset income in the “new” trust.

3. Lost deeds

If the trust deed is lost, first make inquiries with all third parties of the trust such as other current and former trustees, solicitors, directors, accountants, financial advisers, banks, business partners and beneficiaries of the trust who may have a copy of the deeds and their variations.

The trustee then can apply to the Supreme Court to have the deed reconstructed whether or not a copy of the deed has been found, and after every effort has been made to find the trust deed. This alternative is costly and will necessitate giving evidence to the court about the contents of the deed.

Key Points Summary

When considering the implications of lost trust deeds, prevention is the best cure. Options for dealing with a lost trust deed may include:

• Court intervention – To seek directions as to how the trust should be conducted in the absence of the trust deed
• Court may be able to confirm unexecuted copies of the trust deed – If an unexecuted and unstamped copy can be located
• Executing a Deed of Variation – If all the beneficiaries agree to do so
• Deed of Confirmation or Restatement – If a copy of the original deed is found
• Terminating the trust and rolling over the assets – Potential for substantial Capital Gains Tax and stamp duty liabilities.

Unfortunately, most of the options are risky, costly, and complex to deal with. It is therefore very important to keep the original fully executed, dated and stamped trust deed safeguarded and make as many replica copies as needed with copies provided and held by the solicitors and the accountants.

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By Gregory Atamian JJN Associates – Accountants Tax Advisors

The content and the references made in this article are correct as at the publication date and are for general information and should not be relied upon as advice. If you wish to seek particular advice, call us on 02 9997 4000.

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