Dreamworld?** - Varying a power of variation

Previous posts have considered the issues about varying a trust that has not power to vary.

Previous posts have also looked at various aspects concerning the ability to vary trust instruments.

One iteration that is important to remember relates to attempts to vary problematic power of variation.

In other words, if a trust instrument has a variation power that is considered too narrow to achieve wider objectives, is it possible to use the pre-existing variation power to vary that clause of the trust instrument and create a wider power or variation?

As explained by the mantra ‘read the deed', the answer to this question will often depend on the exact terms of the trust instrument.

Very broadly however, the position appears to be as follows:

1. If there is a restriction on how the variation power may be exercised, it is generally not possible to vary the power to remove that restriction.
2. In other words, a trustee cannot implement steps indirectly to achieve something that is prohibited via direct action.
3. The reason for this conclusion is largely based on the rule that a trustee has an overriding duty to comply with the terms of the trust instrument as articulated on the settlement of the trust.
4. The corollary is also true – i.e. if the power of variation expressly contemplates itself being varied, then the trustee should be able to do so.
5. As is almost always the case with the trust deeds, there are a number of related potential issues that should be considered depending on the factual matrix.
6. For example, if a particular trust instrument prohibits distributions to a certain person, but not to a trust of which that person is a potential beneficiary, would a ‘back to back’ distribution from the initial trust to the second trust and then to the relevant person constitute a breach of trustee duties?
7. There is certainly case law to support an argument that where a trustee takes steps to achieve an ulterior purpose, this can constitute a ‘fraud on the power', which means the arrangements may be held to be void by a court.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Midnight Oil song 'Dreamworld’ – inspired by the Cavill Hotels and Star Hotel mentions last week and the icon line ‘the breakfast Creek Hotel is up for sale’.

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