Posts over recent weeks have considered various issues about courts varying a trust deed that has no sufficient power of variation.
One of the cases mentioned was the decision in Cecil Investments Pty limited [2021] NSWSC 211.
This decision (as well as TNB 878 Pty Limited – Brunskill Family Trust [2022] NSWSC 527) is also useful as it confirms that there have been a number of cases where it is has been held tax savings or advantages form a basis of expediency in the management and administration of trust property - one of the key tests that generally need to be satisfied.
In particular the decision lists the following examples:
Re A.S. Skyes and the Trustee Act (1974) 1 NSWLR 597: “… the powers conferred on the Court should not be withheld merely because their exercise is sought to enable the avoidance of a revenue impost…”
Stein v Sybmore Holdings Pty Ltd [2006] NSWSC 1004: “As well, the minimisation of the capital gains tax and stamp duty on the trust property provides a separate basis upon which the conferring of the power is expedient.”
Application of NSFT Pty Ltd [2010] NSWSC 380: “modernisation of the trust deed ... with consequential tax benefits, is expedient in the management or administration of the property vested in the trustee…”
Barry v Borlas Pty Ltd [2012] NSWSC 831: the scope of the court's powers includes preserving trust property and making it financially productive “…which included planning to minimise the impact of tax and duty on the trust property…”
Soo v Soo [2016] NSWSC 1666: "… there are numerous decisions of this Court to the effect that the tax effective administration of a trust is a matter to which regard may properly be had in considering whether or not to exercise discretion".
The above summary largely reflects the conclusions in Kearns v Hill (1990) 21 NSWLR 107, another case featured in other View posts.
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** For the trainspotters, the title of today's post is riffed from the Earth, Wind and Fire song 'Let's Groove’.
Last week's post considered the issues about varying a trust that has no power to vary, under the regime in New South Wales.
While in other states, for example Queensland, it is generally accepted there is a relatively wide power available to the courts to assist with amending trust deeds that do not have robust provisions, the rules in New South Wales are far more restrictive.
One further example in this regard is the decision in Application of Country Road Services Pty Ltd (In the matter of the Browne Family Trust) [2019] NSWSC 779.
In this case a desired amendment to a trust deed to appoint a related trust (that had losses) to allow distributions to it was rejected as not being 'expedient' (as required by the legislation in New South Wales).
The court confirmed that:
The variation of the terms of a trust (including by way of conferral of some new power on the trustee) is not something within the ordinary and natural province of a trustee’s powers (unless the trust deed otherwise grants the relevant power).
It is neither something that is ‘expedient’ that a trustee should do nor, fundamentally, something that is done ‘in management or administration of’ trust property.
Rather, a trustee’s function is to take the trusts as it finds them and to administer them as they stand.
A trustee should not be concerned to question the terms of the trust or seek to improve them.
Thus, even where the trust instrument itself gives the trustee a power of variation, exercise of that power is not something that occurs “in the management or administration of” trust property. It occurs in order that the scheme of fiduciary administration of the property may somehow be reshaped.
Ultimately, the Court’s power to amend a trust deed in New South Wales cannot be used to subvert the beneficial disposition in the trust instrument.
Similarly therefore, a request to amend a trust deed to extend the perpetuity period was held to be another example of the kind of order not authorised by legislation in New South Wales (see Cisera v Cisera Holdings Pty Ltd [2018] NSWCA 286), even though the trust was due to vest in around 7 years and would likely trigger significant capital gains tax costs at that point.
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** For the trainspotters, the title of today's post is riffed from the Simple Minds song ‘New Gold Dream’.
Pursuant to the Trusts Acts (and similar legislation) in most Australian states, there is an inherent power for a court to make variations to trust instruments.
This power can be extremely important where there is no, or a very narrow, power of variation in a trust instrument.
One of the leading cases in this area is Re Dion Investments Pty Ltd [2013] NSWSC 1941.
In broad terms, the case involved a trust deed setup in 1973, which the trustee was wanting to amend so as to be able to better manage the trust property. The relevant legislative provision in New South Wales gave the court the power to amend a trust instrument so long as it was ‘expedient' for the management or administration of trust property.
In rejecting a request to amend the deed by inserting a comprehensive variation power (which in turn would have allowed the trustee to make such changes to the trust deed as it deemed appropriate from time to time), the court confirmed:
The legislative provisions did not allow the court to simply insert into the deed a comprehensive power of variation.
Only specific powers (in contrast to wide discretionary powers) with respect to a particular dealing will be granted under the legislation.
It was however permissible for the court to confer particular and limited powers in relation to certain issues such as how to account for income and capital gains and related tax driven provisions.
Despite not originally crafting its variation request along the lines that the court said was permissible, the trustee was permitted to make further submissions in accordance with the court’s recommendations for immediate approval.
Interestingly, in the subsequent decision of Re Dion Investments Pty Limited [2020] NSWSC 1661, the court authorised a further variation to ensure the ‘foreign person’ land tax surcharge could be avoided. This was in light of the fact that the trust deed did not give the trustee the ability to exclude foreign persons as beneficiaries. In particular, the relevant power of variation was limited to 'trusts' (granted to persons who had all died and therefore had lapsed), not the ‘powers’ – a distinction explored in many previous View posts.
The court confirmed that the requirements in the legislation were all met, namely:
There needs to be a 'proposed dealing', being a 'sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure, or transaction'.
The dealing must be in the Court’s opinion 'expedient'.
The dealing must be incapable of being effected because of an absence of power.
Relevantly the court confirmed that the existence of a tax advantage can form the basis of the ‘expediency’ in the management and administration of trust property requirement; here the land tax saving was over $100,000. This conclusion was reached notwithstanding that the order would adjust or even destroy the rights of some (potential) beneficiaries to the extent that they met the definition of a 'foreign person'.
The same outcome was granted in the case of Cecil Investments Pty limited [2021] NSWSC 211, where the trust deed permitted only a variation to the 'powers' not 'trusts.
This case also confirmed that previous attempted variations to the trust deed were invalid as they breached the limitation set out in the power of variation against anything that purported to change beneficiaries who were takers-in-default of appointment.
As has been explained in numerous previous posts, a comprehensive power of variation is arguably one of the most important aspects of any trust deed.
It is important to keep in mind that the legislation is worded differently in each State, for example the Queensland Courts have a wider power than in NSW. Reference should therefore always be had to the specific wording of the legislation in the relevant jurisdiction.
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** For the trainspotters, the title of today's post is riffed from the Black Rebel Motor Cycle club song 'Salvation’.
In theory, given modern science, the question of who is a parent of a child should be relatively easy to answer.
As the decision in Masson v Parsons [2019] HCA 21 highlights, the answering of this question is not always straight forward.
Briefly the factual matrix involved a female asking a male friend to be a sperm donor so she could carry and bare a child. The 'couple' each entered into longer term same sex relationships with other people, however the male friend was registered on the birth certificate of the father and was actively involved and helped finance raising of the child.
When a dispute arose in relation to living and caring arrangements for the child between the biological mother and father the court confirmed:
There are at least three ways in which a person may be or may become a natural parent of a child depending on the circumstances of the particular case, namely genetically, gestationally and psychologically (see In re G (Children) [2006] 1 WLR 2305).
The question of whether a person qualifies as a 'parent' is a question of fact and degree to be determined according to the ordinary, contemporary understanding of the word and the relevant circumstances of the case.
To characterise the biological father of a child as a 'sperm donor' (and therefore not a 'parent') suggests that the man in question has relevantly done no more than provide his semen to facilitate an artificial conception procedure on the basis of an express or implied understanding that he is thereafter to have nothing to do with any child born as a result of the procedure.
This said, it was unnecessary in this case to decide whether a man who relevantly does no more than provide his semen to facilitate an artificial conception procedure that results in the birth of a child falls within the ordinary accepted meaning of the word 'parent'.
This was because in the circumstances of this case, the man provided his semen to facilitate the artificial conception of his daughter on the express or implied understanding that he would be the child's parent; that he would be registered on her birth certificate as her parent, as he was; and that he would, as her parent, support and care for her, which since her birth he had done.
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** For the trainspotters, the title of today's post is riffed from a line in the Beck song 'Orphans’.
