Variation of Trusts

From Uni Study Guides
Jump to: navigation, search

Trusts can be varied in three ways:

  1. Express power to vary - the instrument contains a broad power of variation to deal with unforeseeable circumstances.
    • Superannuation trusts might be treated differently to other trusts (: Lock v Westpac[1]):
      • In a well-defined benefit scheme, a company is not a fiduciary acting only for the benefits of its employees, but only bound by a duty to act in good faith.
      • In construing superannuation instruments, the court should adopt a practical and purposive approach, having regard to the surrounding circumstances.
      • This authority has been doubted before.
  2. Court's general power to vary in emergency situations - the court can authorise variations of the following nature (:Chapman v Chapman[2]):
    1. Changes in the nature of investments on behalf of infants, such as approving investments in real property instead of personal property;
    2. Investments in business transactions not authorised by the trust;
    3. Payment of maintenance out of income, even if directed to be accumulated; and
    4. Compromises in favour of unborn infants.
    5. Where circumstances arise thwarting the intentions of the settlor and the parties agree to give effect to the settlor’s intentions as much as possible: Tickle v Tickle.[3]
  3. Court's statutory power to vary - court can vary make any variations to the trust if (:s 81[4])
    1. A question must have arisen in the management or administration of the trust (ie, must be on application of the parties, no general power to vary).
      • The ‘question’ must relate to some ‘dealing’ being any sale, lease, mortgage, purchase etc.
    2. The making of the order sought is expedient in the management or administration of the property.
      • 'Expedient' is given a fairly broad interpretation, and does not mean it must be a special case: Riddle v Riddle.[5]
    • Limitation - the court still needs to consider the intention of the settlor - it can't make a variation which would be inconsistent with the purpose of the trust/settlor: IRC v Bernstein.[6]

This article is a topic within the subject Property, Equity and Trusts 1.

Contents

Required Reading

Evans, Equity and Trusts, 3rd edition, Lexis Nexis, 2012, pp. 474-482 [Chapter 27].

Powers of Variation

[7] A trust can only be varied in three ways:

  1. Express power to vary - trusts frequently contain a broad power of variation to deal with unforeseeable circumstances.
  2. Court's general power to vary in emergency situations - in certain emergency situations, the general law allows the court to vary a the terms of a trust.
  3. Court's statutory power to vary - the Trustee Act 1925 (NSW) allows the court to vary the trust if certain requirement are satisfied (different to the emergency ones, and more broad).

Court's Power of Variation in Emergencies

Accordingly to the general law, the court only has a power to vary a trust in case of emergencies, to authorise changes of the following nature:[8]

  1. Changes in the nature of investments on behalf of infants, such as approving investments in real property instead of personal property;
  2. Investments in business transactions not authorised by the trust;
  3. Payment of maintenance out of income, even if directed to be accumulated; and
  4. Compromises in favour of unborn infants.
  5. Where circumstances arise thwarting the intentions of the settlor and the parties agree to give effect to the settlor’s intentions as much as possible.[9]

Court's Statutory Power of Variation

s 81 of the Trustee Act 1925 (NSW) gives courts, on application of the parties, broad discretion to authorise variations in trusts where it deems it 'expedient'.

In order to invoke these provisions, both of the following criteria must be satisfied:

  1. A question must have arisen in the management or administration of the trust (ie, must be on application of the parties, no general power to vary).
    • The ‘question’ must relate to some ‘dealing’ being any sale, lease, mortgage, purchase etc.
  2. The making of the order sought is expedient in the management or administration of the property.
    • 'Expedient' is given a fairly broad interpretation, and does not mean it must be a special case.[10]
  • Limitation - the court still needs to consider the intention of the settlor - it can't make a variation which would be inconsistent with the purpose of the trust/settlor.[11]

This was discussed in Stein v Sybmore Holdings:[12]

  • Facts: the parties to a trust wanted to vary it for tax reasons. The purpose of the trust was to benefit close family members without giving up control of the assets.
  • Held: As the variation would fulfil these purposes, it was considered ‘expedient’ and allowed to proceed.

Other examples include:

  • In Re Baker, deceased; Rouse v A-G (Vic),[13] a trust was varied to allow investment in companies beside the prescribed one in the deed itself. However, it was limited to ‘established stocks’.
  • In Perpetual Trustee v Godsall,[14] a trustee was given power to sell a house left to a widow for life and to purchase a more suitable residence.
  • In Re Bowmill Nominees,[15] the court allowed a wider amendment agreed upon by the beneficiaries to avoid further applications to the court for granting further powers.
  • In Graham Australia v Perpetual Trustees WA,[16] the unit-holders of a trust passed a resolution, pursuant to the trust deed, which allowed the trustee to redeem units at their value before the stock market crash in 1987. This variation was allowed, as it was held to benefit the unit-holders and was made in good faith.

There was a question whether beneficiaries should be represented in an application for variation of a trust deed for a fear that their interest might be forgotten. The court determined that it is unnecessary since it is for the judge to investigate all the interests etc anyway.[17]

Amendments to Superannuation Trust Deeds

[18] Superannuation trust deeds contain wide powers of variation due to the constantly shifting nature of tax treatments. However, even express powers of variation do not always confer an absolute licence on trustees to rewrite their trusts.

This was discussed in Wilson v MGM:[19]

  • Facts: the deed gave the trustees and employer power to alter so long as, in the opinion of the company, it would not prejudice any benefit secured by contributions made on behalf of any members.
  • Held: that power was not held to confer an absolute discretion. Any amendment which tries to take away from any possible future benefit will not be allowed. In addition, the employer's position as a fiduciary means it cannot vary the trust to its benefit.
    • Note that if the trustee was someone else and not the employer, it could probably vary the trust to the benefit of the employer (fiduciary duty was key).

In Lock v Westpac, it was held that the courts should take a different approach to superannuation trusts than traditional trusts:[20]

  • Facts: Westpac tried to give itself money from the surplus of the superannuation benefit scheme according to its power of variation. The beneficiaries challenged it.
  • Held: in a well-defined benefit scheme, a company is not a fiduciary acting only for the benefits of its employees, but only bound by a duty to act in good faith. In construing superannuation instruments, the court should adopt a practical and purposive approach, having regard to the surrounding circumstances.

Lock v Westpac has been doubted for its authority, but its probably still good law. There is no reason why a surplus can't be given back to the company.

End

This is the end of this topic. Click here to go back to the main subject page for Property, Equity and Trusts 1.

References

Property Textbook refers to Edgeworth et all, Sackville and Neave's Property Law Cases and Materials, 8th edition, Lexis Nexis, 2008.

Equity Textbook refers to Evans, Equity and Trusts, 3rd edition, Lexis Nexis, 2012.

  1. (1991) 25 NSWLR 593.
  2. [1954] AC 429.
  3. (1987) 10 NSWLR 81.
  4. Trustee Act 1925 (NSW), s 81).
  5. (1952) 85 CLR 202.
  6. [1961] Ch 399.
  7. Equity Textbook, pp. 474-9 [27.1-27.12].
  8. Chapman v Chapman [1954] AC 429.
  9. Not in the original case (Chapman), but added in Tickle v Tickle (1987) 10 NSWLR 81.
  10. Riddle v Riddle (1952) 85 CLR 202.
  11. IRC v Bernstein [1961] Ch 399.
  12. (2006) ATR 325.
  13. [1961] VR 641.
  14. [1979] 2 NSWLR 785.
  15. [2004] NSWSC 161.
  16. (1989) 1 WAR 65.
  17. Arakella v Paton [2004] NSWSC 13.
  18. Equity Textbook, pp. 479-82 [27.12-27.16].
  19. (1980) 18 NSWLR 730.
  20. (1991) 25 NSWLR 593.
Personal tools
Namespaces

Variants
Actions
Navigation
Toolbox