In a recent Victorian Supreme Court decision in Re McGowan & Valentini Trusts [2021] VSC 154, the Court held in favour of the trustee. Within that case, there were a number of trust law issues that legal practitioners today should be wary of when drafting trusts.

Background

Giuseppe and Norma Valentini created two trusts (dated 14 February 1977) which were named ‘Anna McGowan’ and ‘Peter Valentini’ (‘the Trusts’) for the benefit for each of their children. The property settled in the Trusts was to vest absolutely in Anna and Peter when they turned 30 years old.

The settlor of each trust was Norma’s sister, Doris Searle. The Trusts appointed I.N. & G. Nominees Pty Ltd (ING) as the trustee. However, ING was not registered until 19 months after the execution of the Trusts.

In August 1976, Giuseppe and Norma purchased Victoria Street which was held jointly by Giuseppe and Norma. Although the property was never transferred to the Trust, it was treated as being held as a property for the Trusts in equal shares.

While the trust property had vested absolutely in Anna and Peter on 23 June 1991, the Trusts continued to be treated as still operating. Additionally, Doris, Anna, Peter, and ING executed further deeds (1991 Trusts) by relying on the variation power contained in the Trusts. The amendments included widening the class of discretionary beneficiaries, amending the trustee powers and extending the vesting dates of the trusts. Consequently, the affairs of the original trusts were conducted as if they were amended trusts.

The Court’s decision focused on 4 key areas:

The identity of the trustee and the trust may still be valid even if the corporate trustee is not registered at the time when the deeds were executed.

ING was registered 19 months after the 1977 Trusts were executed and thus, it was unsure whether the trusts and identity of trustee will still be valid.

Is the trust valid?

The Court held that to create a valid express trust, there must be present 3 certainties:

1. Certainty of intention
2. Certainty of subject matter of the trust; and
3. Certainty of the identity of the beneficiaries of the trust

The 1977 Trusts were valid because it met requirements of the 3 certainties:

1. There was certainty of intention as Doris as settlor as she expressly declared 2 trusts
2. Certainty as to the identity of the beneficiaries, being their children and grandchildren
3. Certainty in relation to the trust property being the $10 settled by the Trusts respectively.

Can the identity of the trustee be confirmed?

The Court held that that equity will not allow a trust to fail for want of a trustee as this is contrary to the settlor’s intention. Clauses 6 and 7 of the 1977 Deeds allowed the appointment of new or additional trustees and specify in whom that power of appointment resides. Hence, the Court inferred that the settlor’s intent was that the Trusts should not fail for want of a trustee.

Additionally, individuals can take the role of the trustee if the intended corporate trustee was not incorporated yet they proceeded to have it incorporated with one of its objects being to undertake the office of a trustee. Thus, during the period where the company trustee was not yet incorporated, Giuseppe and Norma acted as trustees, and all acts performed by them as trustee were held to be valid.

Provided there is supporting documentation, a property purchased by the creators of the Trust but not transferred to the corporate trustee will be a part of the Trust even if there is no express, signed declaration of trust made by the company over any properties.

The Victoria Street property was purchased by and settled in the names of Giuseppe and Norma before ING was registered as a company. No signed, written declaration of trust could be produced to show that they declared a trust over the property for the corporate trustee. Thus, the issue was that whether the property came under the Trust.

It should also be noted that for an equitable interest to be enforceable and have effect in relation to the property, s 53(1)(b) of Property Law Act 1958 (Vic) must be complied with. The section provides that:

“a declaration of trust respecting any land, or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will…”

These requirements were an issue for the Trusts as there was no written, signed declarations of trust in respect to Victoria Street or any other properties. However, the Court held that a written record that sufficiently evidences the trust and its terms is sufficient. The Court also noted that a declaration of trust does not need to be in writing and can be a combination of documents and informal writing, such as correspondence or an affidavit.

Thus, the evidence used in Re McGowan & Valentini Trusts to prove the properties as assets included:

• 1977 and 1991 deeds
• Income tax returns for the Trusts
• Income of other properties was distributed in accordance w the terms created by the 1977 Deeds.
• Affidavit of Norma

Legal practitioners should take care to keep requirements of s 53(1)(b) to prevent proving the declaration of trust or ending up with a protentional unenforceable trust.

The trusts may continue to exist after the deeds are vested.

The Trusts were vested in 1998 and 1991, after each child turned 30. After this, however, the trusts were treated as if they have not vested for the next 30 years and the question for the Court was whether the Trusts continued on existing after the vesting date.

The Court held that the Trusts did not immediately cease to exist and that the assets continued to be held on the same trusts and on the same terms after vesting.

Amendments to trusts may still result in the continuation of the original trust as long as the variation powers permit such amendments and the proposed amendments do not destroy the substratum of the trust.

The key question here was whether the amendments in the 1991 deed resulted in the continuation of the trusts or created new trusts altogether.

The power of amendment in the 1977 deeds was broad and permitted variations contained in the 1991 deeds. Further, the amendment was made in conformity and promoted the purposes of the trusts and the substratum of the trusts. The substratum of the Trusts was to benefit the Valentini family and create a tax effective mechanism for spreading the income of the family enterprise, and the 1991 Trusts purported to benefit the members of the same family and widen that class. Thus, the 1991 amendments were constituted as valid.

This ultimately gives practitioners much greater flexibility when the need arises to make alterations to a trust deed without creating a new trust deed.

Key Takeaways:

• If the corporate trustee is not registered when the deeds were executed, the trusts may be valid.
• A property may be transferred to the corporate trustee in the absence of an express, signed declaration of trust if there is supporting documentation.
• A trust can continue to exist even after the vesting date.
• Amendments to the trust may continue the original trust provided that the variation powers allow those amendments and do not destroy the substratum of the original trust.