The recent Victorian decision of Re Owies Family Trust  VSC 716 reinforces the importance of ensuring documents for structures such as family trusts are correct. The same principles apply to self-managed superannuation funds (SMSFs) and other trust structures.
Re Owies Family Trust involved a dispute between (adult) brothers and sisters over how a family trust established by their parents many years ago 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. A number of them revolved around documents for the trust, including trust deed variations changing the identity of the appointor and the guardian, whether directors of the trustee company had been appointed properly, and to whom income distributions had been made from the trust.
The outcome hinged on whether particular decisions were effective, and what documents were valid.
The Court decided:
- The variations that changed who was the appointor and the guardian was not within the variation power in the trust deed. This meant that the wrong person had been consenting to decisions and trust variations. It also meant that the trust no longer had an appointor or a guardian so one issue in dispute was whether the trust was controlled by the child intended by the parents’ planning.
- One of the directors of the trustee company (the family’s lawyer) had not been appointed as a director in accordance with the rules in the constitution of the trustee company, and so was not a director. This again affected how the trust was controlled after the death of both parents, and may have invalidated some decisions or allowed one of the children to make decisions with no co-director.
- The directors of the trustee company had not kept written records of decisions, and so had to use other evidence to prove decisions had been made. This required the trustee to obtain and produce additional material that would not have been necessary with proper records. Without that additional material, the Court may have decided that some things the trustee was supposed to have done had not in fact occurred.
- Final signed income distribution resolutions could not be found for every year in dispute, so other evidence had to be used to establish the distribution decisions made by the directors. If that could not be proved, different beneficiaries would have been entitled to the income of the trust for many years.
Advisers and trustees should check structures such as family trusts and SMSFs to ensure key documents can be located and have been prepared properly. Missing or ineffective documents can adversely affect a structure while it is running, lead to disputes about what happened, and lead to different results to what was intended after death. This includes appointments of directors and changes to shareholdings, variations and changes of trustee, pension documents, income allocations between members in SMSFs, and distribution decisions.