No power to vary trust deed? Section 86A to the rescue!
It is often necessary to vary a trust deed for various reasons, including to:
ensure the trustee has sufficient powers in dealing with income of the trust;
ensure that the class of beneficiaries is sufficiently wide, or perhaps, narrow, given changing family circumstances; and
prevent duty and land surcharges being imposed when the trust acquires or holds residential property by excluding foreign persons as beneficiaries.
The problem is that sometimes, particularly with older trusts, the deed does not provide the trustee with the power to vary the deed or the power is not sufficiently broad to make the necessary amendment. Even where a trust deed contains a sufficient power to amend, there may be limitations which mean it can no longer be used. For example, some trust deeds provide that the variation power can only be exercised during the lifetime of the 'appointor' or 'parent'.
Fortunately, the Trustee Act 1925 (NSW) now provides trustees facing such a situation with an alternative option.
The Act was amended in 2020 to add section 86A after it was suggested by Bathurst CJ in Cisera v Cisera Holdings Pty Ltd [2018] NSWCA 286 and an order was made under it in a recent case.
What does section 86A do?
Prior to the introduction of section 86A, when a trust deed did not contain a sufficient variation power, the parties had to rely on section 81, which allows the court to make orders for a trustee to conduct transactions even though they may be in breach of the trust deed, to authorise a transaction that was not otherwise permitted by the deed. However, section 81 is not ideal as it does not confer on the court a power to amend the trust deed.
Section 86A now allows the court to vary or revoke all or any of a trust, including enlarging the powers of the trustee for the purpose of managing or administering any property of the trust subject to the purpose of the trust. Only certain persons, generally those with an interest in the trust, are able to apply for an order under section 86A.
Section 86A was recently considered in Campbell v Campbell [2022] NSWSC 554. In this case, the parties had agreed that it was in the best interests of the beneficiaries for the perpetuity date set in the trust deed to be brought forward from 24 November 2035. The Court considered several matters in making an order under section 86A including that:
the parties would be able to move past the current 'costly and paralyzing legal disputes'; and
the Court recognised that making the order under section 86A would be consistent with the objectives behind the creation of the discretionary trust.
What does this mean for trustees?
Where trustees are faced with a trust deed that is not fit for purpose, but the deed does not contain a sufficient variation power, the trustee now has an option to approach the court to seek an order varying the trust under section 86A.
Some circumstances where trustees make wish to seek such an order include:
to expand or narrow the class of beneficiaries;
to permit the trustee to characterise receipts of the trust as income or capital;
to exclude foreign persons from benefiting from the trust;
to extend the vesting date of the trust; and
to vest the trust earlier than the vesting date specified in the deed.
How can we help?
We are experienced in assisting with all aspects of varying trust deeds, including advising on whether there is sufficient power to amend and, if not, we are able to assist trustees in approaching the court under section 86A.
If you or your client require assistance to vary a trust, please do not hesitate to contact Snezana Vojvodic, Matthew McKee or Elisa Molen Grigull.
The material in this article was correct at the time of publication and has been prepared for information purposes only. It should not be taken to be specific advice or be used in decision-making. All readers are advised to undertake their own research or to seek professional advice to keep abreast of any reforms and developments in the law. Brown Wright Stein Lawyers excludes all liability relating to relying on the information and ideas contained in this article.