Amending Trust Deeds

At the Noosa National Tax Intensive Retreat in 2006, Grahame Young presented on Amending Trust Deeds.  The paper became compulsory reading for my tax team to understand the restrictions on the power to amend, the commercial reasons for amending, and the income tax and stamp duty consequences of amending a trust deed.

G. Young, ‘Where are we at amending trust deeds after Clark’s case?’, TTI (National), 14 March 2013 discusses the tax and legal considerations and continuing restrictions on amending trust deeds after FCT v Clark [2011] FCAFC 5; [2011] HCA Trans 236.

FCT v Clark concerned changes made to a Unit Trust with tax losses without amending the terms of the trust deed and is significant for applying FCT v Commercial Nominees of Australia Ltd [2001] HCA 33; [1999] FCA 1455 to determine whether there had been a lack of continuity in the constitution of the trust, the trust property or the trust beneficiaries creating a new trust.

Post FCT v Clark, the demise of the much criticised Statement of Principles (August 2001) and the publication of TD 2012/21, a variation is unlikely to constitute a new trust unless there is a significant change to the trust constitution (Davidson v Chirnside [1908] HCA 65; CSR (Vic) v Lam & Kym P/L [2004] VSCA 204), the trust property (FCT v Clark [2011] FCAFC 5 at [84]-[85] or the trust beneficiaries (Buckle v CSD (NSW) [1998] HCA 4).

The apparent simplicity conceals the actual complexity of the amendment process. Grahame discusses the mutually exclusive distinction between amending trusts, powers, terms, obligations, officeholders and trust fund and the antecedent drafting and construction deficiencies in many trust deed amendment clauses.  He also discusses the limited ability of the beneficiaries by consent or the courts under the Trustee Acts to amend deeds with deficient amendment clauses or otherwise vary mandatory amendment procedures.

Importantly, amendments beyond power or invalidly effected are ineffective and often result in invalid future distributions and exercise of powers and amendments.

This paper should be compulsory reading for new tax lawyers.

Examples of court variations include Re Glenfor P/L [2007] VSC 222 and Re Plator Nominees P/L [2012] VSC 284.