Justice McMurdo in the Supreme Court of Queensland has given an interesting decision relating to Trust Law in the matter of the Arthur Brady Family Trust and Trekmore Trading Trust.
The Facts
The Brady family applied to the Court for orders that the vesting date of their two family trusts, the Arthur Brady Family Trust and the Trekmore Trading Trust, be extended to a date which is 80 years from the settlement date of the Arthur Brady Family Trust, so that the vesting date for both trusts would be 16 February 2057, if not before.
The original Arthur Brady Family Trust was established by a Trust Deed dated 16 February 1977 and contained a provision that it vested no later than 40 years from the date of settlement of the Trust Deed. This resulted in the vesting date being no later than 16 February 2017. The Trust was established by the now deceased parents of the current Beneficiaries, who are their two sons and their adult children.
In the case of the Trekmore Trading Trust which was only established in June 2008, it contained a provision that the vesting date would be no later than 16 February 2017. (This is a surprisingly short period for the duration of the trust of just under 9 years. The reason for this was that the two sons split the assets of the original trust into two trusts, possibly with the design of giving each son’s family independence from the other.)
In Trust Law, the vesting date is the expiry date of the trust and the assets held at that time must be transferred in accordance with the prescription made by the terms of the Trust Deed, usually to nominated beneficiaries. Trusts are not allowed to have a vesting date in excess of 80 years from the creation of the trust.
The Trustees of each of the Brady Family Trusts wanted to avoid the vesting of the trusts and extend the life of the trusts to the maximum of 80 years, because if the trusts were forced to vest, they would incur substantial amounts of Stamp Duty and Capital Gains Tax (“CGT”).
The evidence before the Court was that the Arthur Brady Family Trust had a portfolio of industrial and commercial real estate comprising of 7 properties with a total value of more than $7 million.
The Trekmore Trust held another 7 properties with a total value of more than $8 million.
The vesting of both Trusts would produce an estimated Capital Gains Tax liability for the Arthur Brady Trust of $500K in CGT and $370K in Stamp Duty.
In the case of the Trekmore Trust the estimated CGT was more than $600K and the Stamp Duty liability more than $400K.
In addition, there were Beneficiary loans recorded in the financial statements of the Trusts amounting to nearly $2 million and nearly $3 million respectively. Those loans would require repayment on the vesting date.
In order to maintain the same property portfolios within these two branches of the Brady family, monies would have to be borrowed to meet the CGT and duty components incurring further expenses. As a result, there would be a substantial burden in each case if the portfolio was to be preserved or alternatively, there was a diminution of the portfolio.
The Problem
Both Trust Deeds contained a provision with the effect that the Trustees were not authorised to alter the vesting date of the trusts.
The Beneficiaries of both Trusts unanimously supported the application to the Court by the Trustees to extend the vesting date and avoid the forced vesting of the Trusts.
The Solution
The Trustees relied on section 94 of the Trusts Act 1973 (Qld) which provides jurisdiction for the Court to make orders to authorise a transaction by a Trustee which is expedient for the management of the Trust, or for the best interests of Beneficiaries, when the Trust Deed otherwise does not contain any power for the Trustees to enter into such transactions.
The Trustees’ Barrister submitted that extending the vesting date was a transaction within the meaning of section 94 so the Court could authorise the amendment of the Trust Deeds to extend the vesting date, notwithstanding the prohibition of extending the vesting date in the Trust Deed itself.
Justice McMurdo found that previous cases supported the view that an amendment of the Trust Deed to change the vesting date could be fairly characterised as a transaction.
The proposed transaction would be in the best interests of all the beneficiaries of the Trusts, while the alternative, if the Court did not authorise an amendment to allow the Trustees to extend the vesting date, would be a substantial depletion of the assets held by each Trustee.
In conclusion, Justice McMurdo authorised and empowered the Trustees to amend the vesting dates of the trusts to effectively 16 February 2057.
Message for Clients
It is important to be aware of the vesting date of your Family Trust Deed.
The common drafting of our Family Trust Deeds provides for 79 years before the Trust vests (79 years is chosen so that it is clear the vesting date does not exceed 80 years and risks invalidating the trust). Vesting dates are rarely much shorter than 80 years. This case highlights that the considerable financial loss Family Trust Beneficiaries may suffer by an inopportune vesting date.
Feel free to contact your usual Solicitor at our firm to review your Trust Deed if you are concerned that the vesting date may be imminent. Although the Trust Deeds we commonly prepare for our clients will provide for a vesting date in 79 years, some of our clients have Trust Deeds prepared for them by other Lawyers and we may be unaware of when the vesting date is. Therefore, this is a timely reminder to our clients to be conscious of this issue and contact us if necessary.
