When variation clauses go wrong for family trusts – Re Owies Family Trust

When variation clauses go wrong for family trusts – Re Owies Family Trust

08 December 2020 Authored by: Scott Hay-Bartlem   |   Topics: Estate administration and disputes, Estate planning, Superannuation, Professional advisers, Tax and revenue, Tax disputes, Trusts

The recent Victorian decision of Re Owies Family Trust [2020] VSC 716 reinforces the importance of checking variation powers in trust deeds and ensuring they are wide enough.

Re Owies Family Trust involved a dispute between brothers and a sister (all adults) over how a family trust established by their parents in 1970 had operated for the last years of their parents’ lives, and would operate into the future. The trust held substantial assets including an apartment in Melbourne where one of the parties lived.

There were many issues in dispute. Over the years the trust deed had been varied to change the identity of the appointor and the guardian from the parents to ultimately one of their children. The first issue was whether the variation clause in the trust deed allowed the person who was appointor and guardian to be changed. If the variations were effective, the child was the appointor and the guardian with particular powers. If not, the trust no longer had an appointor or a guardian.

The variation power in the trust deed allowed the trustee to ‘vary all or any of the trusts hereinbefore limited’ and to ‘declare any new or other trusts or powers’. This was a typical variation power for a trust set up at the time.

The Court decided the variation power did not allow the trustee to alter the Schedule (which was where the identity of the appointor and the guardian was listed) or otherwise to amend the identity of the appointor and the guardian.

This meant the appointor and guardian role had not been changed to the intended child, and the trust no longer had an appointor or a guardian. As a result, control of the trust did not flow as smoothly as the parents had planned.

This is another court case that reminds advisers to check the variation power in family trust deeds to ensure proposed and past variations are within the power. There have been other cases in the last few years where amendments to trust deeds were not allowed, which lead to outcomes different to what was intended.

If you would like any assistance with reviewing past trust deed variations or considering varying a trust deed, please contact a member of our team.

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