In short, due to a lost deed, a family trust was ordered to have failed. The assets of that trust were ordered to be transferred back to the deceased’s estate of the person who had transferred them to the trust over 40 years earlier!

Facts

Teresa was the matriarch of the Mantovani family. She had four children, who are now all in their 60s.

Sometime in 1976 a family trust was created with a company called Vanta Pty Ltd acting as trustee. A schedule — which all parties accepted as accurate — stated that the settlor was Teresa’s father. Although the schedule was available, no other portion of the deed was available, despite extensive searches.

In the late 1970s and early 1980s Teresa transferred several real estate titles to Vanta Pty Ltd as trustee for the family trust.

In 2015, Teresa died. All parties agreed that the family trust had been created and that Vanta Pty Ltd owned the real estate as trustee of the family trust.

One of Teresa’s four children (Giovanni) was the plaintiff in this case. Giovanni had lived in the one of the family trust’s properties for the entirety of his life. Giovanni asserted that he had spent substantial sums of money maintaining and improving that property. Giovanni deposed that Teresa told him that that property would be his upon her death.

However, Giovanni was not a director of Vanta Pty Ltd. Rather, two of Giovanni’s siblings were directors (Nicola and Salvatore).

Accordingly, at its core, this case is possibly a dispute between siblings: Nicola and Salvatore appeared to maintain that Giovanni’s home was part of the trust and stated that it was unclear whether Giovanni was a beneficiary of that trust. They did not appear to want to treat the property as part of Teresa’s estate.

Giovanni on the other hand sought a declaration that the family trust failed due to the lost deed and that all assets by Vanta Pty Ltd actually formed party of Teresa’s estate.

Findings

All accepted that the family trust had been established and that the establishing deed at least at some stage existed, even if the deed couldn’t be found now. The schedule and the way the financial statements and income tax returns had been prepared were evidence of what the deed’s contents might have been.

However, McMillan J found that if the trust was allowed to continue on the balance of such evidence, the administration of the trust would involve ‘mere guesswork’.

McMillan J noted that where the contents of a trust deed cannot be ascertained, the trustee cannot discharge its obligation to act in strict conformance with the terms of the trust.  Accordingly, she held that the trust failed.

Teresa was not the settlor of the family trust. However, she had provided of the bulk of the trust property. Accordingly, McMillan J held that the properties that she had transferred to the family trust were effectively still Teresa’s and formed part of Teresa’s estate!

Trust or SMSF deed updates

There are many document suppliers these days that offer trust or SMSF deed updates that either do not review prior deeds or have non-qualified lawyers review these documents in a superficial manner. Varying or updating trust and SMSF deeds can involve considerable complexities.

Almost all SMSF strategies and arrangements rely on a ‘firm foundation’ being the trust deed. The trust deed is like the foundations of a house. Unless you have firm foundations, the house may prove shaky and be blown down by rough weather. Having a robust deed is very important for many SMSF strategies including pensions, binding death benefit nominations, and determinations of who eventually gets control of the fund on death, separation of a relationship, and any other disputes. Thus, it is important to ensure the fund’s governing rules provide a firm foundation for every SMSF.

Note that an SMSF’s governing rules also require all prior deeds, rules, and changes of trustee to be validly prepared, executed, and, if necessary, stamped, in compliance with prior variation powers, relevant consents, and appropriate legal formalities. All these formalities must have been complied with in the document trail otherwise the fund’s governing rules may be invalid and ineffective.

Implications

The implications of this decision are significant. Basically, the implications appear to be that if a deed is lost — unless there is clear and convincing evidence of the exact contents of the deed — all trust property might be transferred back to the person who transferred it to trust in the first place.

In the facts of this case, this outcome seems quite sensible. However, it poses many questions in the context of an SMSF. 

What if the contributor was an employer? Surely an employer should not receive any super contributions back simply because an employee has lost the employee’s own SMSF deed? (Deeds can exclude the presumption of resulting trust to minimise the risk of this happening.)

What if the deed that is lost was the establishing deed but a subsequent deed is available? Presumably that subsequent deed would represent the governing rules of the SMSF and the SMSF would not fail, but that is not entirely clear or certain.

Also, would the outcome have been different if the trustee had made an application prospectively, rather than waiting for a disgruntled beneficiary to make an application? At paragraph 100 there is suggestion that a different conclusion might have been reached had the trustee been more diligent and proactive in seeking judicial input. 

A lost trust deed is a significant issue for an SMSF or a family trust. There are practical ‘stop gap’ measures available, such as drafting a deed update purporting to implement new governing rules, but there is no certainty that such measures will definitively be effective. The greatest certainty is obtained via a court order … however, when applying for a court order, there is no guarantee that the court will actually grant the order! For example, Re Barry McMahon Nominees Pty Ltd [2021] VSC 351 was a somewhat similar case that involved a trust with a lost deed. There, the court ordered that insufficient inquiry had occurred and the trustee should conduct additional searches and then file further evidence with the court.

Conclusion

In short, a lost trust deed is not a mere procedural or administrative matter. It will cause risk and uncertainty for the life of the SMSF or trust. There can be tremendous merit in obtaining a tailored legal solution in these circumstances. Indeed, obtaining appropriate legal advice in a timely manner can minimise risk, cost and uncertainty; some however seek to defer the issue hoping the risks will go away and never surface.

By Bryce Figot, special counsel & Daniel Butler, director, DBA Lawyers