Varying a Trust Deed – How hard can it be?

09 July 2008 Topics: Trusts

Discretionary trust deeds are designed to provide clients with maximum flexibility and most modern deeds give the trustee wide powers of variation.

However, it is always necessary to check the wording of the trust deed carefully to ensure that a proposed variation is within the scope of the trustee’s powers.

This was illustrated in a recent Queensland Supreme Court decision (Jenkins v Ellett [2007] QSC 154).

In this case Mr George Jenkins was the trustee and principal of his family trust.

Exercising his powers of variation as trustee, he purported to remove himself as principal and appoint a replacement.

After his death this change of principal was successfully challenged by the executors of his estate.

The variation clause allowed the trustee to vary “all or any of the trusts declared” in the trust deed.

The Court held that:

  • the “trusts declared” referred to the specific declaration of trust earlier in the trust deed;
  • the trustee did not have power to vary every provision in the trust document; and
  • the purported change of principal was invalid.

There are a number of lessons to be learned from this decision.

Firstly, when setting up a trust, make sure the power of variation is wide enough to allow the trustee to vary any of the provisions of the document, including schedules to the deed.

The second is to make sure that you carefully check the wording of a trust deed before preparing a deed of variation.

If you have any queries regarding Trust Deeds or would like to discuss any other matters related to tax law, please contact any of our team on (07) 3231 2444.

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