When tax savings inspire courts to decide: Let's Groove** with a proposed trust variation

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:

1. 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…”
2. 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.”
3. 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…”
4. 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…”
5. 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.

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 Earth, Wind and Fire song 'Let's Groove’.

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Lost trust deeds and the presumption of regularity: A (Boogie) Wonderland**

Recent posts have considered various issues in relation to lost trust deeds.

The decision in Chase v Chase [2020] NSWSC 1689 provides another useful summary of the key issues in this area.

In a situation where there was only secondary evidence about the possible existence of a trust, the court reiterated anyone wanting to have the court confirm the existence of a trust relationship is required to establish:

1. Clear and convincing proof of the existence and contents of the missing trust deed (as confirmed in the decision of Maks v Maks (1986) 6 NSWLR 34, as set out in an earlier post).
2. The '3 certainties of a trust', that is:
1. The identity of the beneficiaries.
2. The property the subject of the trust.
3. The nature of the trust (i.e. whether fixed or discretionary).

The court found the above tests had not been satisfied.

In particular, there was an absence of a declaration of trust, an absence of any document establishing the terms of the trust and a lack of coherent evidence of what the contents of any such documents were. Thus there was uncertainty as to the identity of the beneficiaries, the property the subject of the trust and whether or not the trust was fixed or discretionary.

The court also made comments about the potential application of the 'presumption of regularity', another concept featured in previous View posts.

This presumption states that where 'an act is done which can only be legally done after the performance of some prior act, the proof of the latter carries with it a presumption of due performance of the prior act'.

The court confirmed:

1. There are 4 key conditions that must be satisfied, before the resumption of regularity will be applied.
2. First, the matter must be more or less in the past and incapable of easily procured evidence.
3. Second, it must involve a mere formality or detail of required procedure in the routine of a litigation or of a public officer’s action.
4. Third, it must involve, to some extent, the security of apparently vested rights so that the presumption will serve to prevent an unwholesome uncertainty.
5. Fourth, the circumstances of the particular case add some element of probability.

Cross referencing the case of Burnside v Mulgrew; Re the Estate of Doris Grabrovaz [2007] NSWSC 550, it was confirmed that when considering the presumption of regularity, courts will draw a distinction between cases where “what is in question is compliance with formal requirements” as opposed to those involving a “substantive issue”, with the presumption potentially applying in cases of the former but not the later.

Thus here, unlike the cases mentioned in last week's post, where there was very little to support the existence of the trust, the presumption of regularity offered no assistance.

As usual, please contact me 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 Earth, Wind and Fire song 'Boogie Wonderland’.

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