Trust me… when recording a change of trustee, getting the right advice and documentation now will save you in the future

Corporate & Commercial 26 August 2020

There can be any number of reasons why a change of trustee of a trust is sought.

Where there are individual trustees, they may seek to limit their liability in relation to the trust by appointing a corporate trustee.  Death, bankruptcy, insolvency, mismanagement, matrimonial separation or a sale of a business operated by the trust are other reasons why a change of trustee may take place.

If you are seeking to change the trustee of your trust, there are three important steps you must take:

  1. Read the trust deed;
  2. Involve your financial and legal advisors; and
  3. Record the change or variation contemporaneously by way of a deed.

While the information below is specifically in relation to changes of trustees, the takeaway points are applicable in relation to any variation you may seek to make in respect of a trust.

How can I change the trustee?

The place to start is to read through the trust deed.  This important document is the source of the powers for both the trustee and the appointor of the trust and should detail, amongst other things, the requirements for a change of trustee to take place.

Subject to the provisions of each particular trust deed, the appointor has the discretionary power to remove a trustee from office and to appoint a substitute or additional trustee.  This is most often an unqualified power of removal and appointment, meaning the appointor has discretion to remove or appoint a trustee at any time with no need to show cause.

Often the trust deed will also allow a trustee to give written notice to the appointor of their resignation as trustee.  The trust deed may also allow for the automatic removal of a trustee from office on certain events, for example in the event of death, bankruptcy, insolvency or misconduct.

The exact requirements to effect this change of trustee will depend on your individual trust deed.  Most commonly a change of trustee must be effected by the appointor in writing.

When should changes be documented?

A change in trustee should be documented in writing contemporaneously with the change taking place.  This will ensure that the requirements of the trust deed have been met at the time the changes take place, and there will be no confusion or questions as a later time.

This change should ideally take place by way of a deed, signed by all relevant parties, which sets out the resignation or removal of the old trustee and the appointment of the new trustee in their place.

Who can assist me?

For many of our clients who are seeking to change the trustee of their trust, their first point of contact is their accountant or financial advisor, however your legal advisor should also be involved in undertaking any variations to your trust deed, including a change of trustee.  This will allow your advisors to work together to undertake the steps required to effect the change and advise you of any risks.

Your legal advisor will review your trust deed and confirm the requirements for a change of trustee.  They will then prepare the relevant documentation for resignation/removal and appointment to be finalised.

Your legal advisor will also work with your financial advisor and assist with any other steps required to effect the change of trustee, including transfer of any real property held by the trustee for the benefit of the trust.  This may also include providing advice in relation to any stamp duty exemptions available in respect of the transfer.

What if a deed was not prepared at the time the trustee was changed?  Can I now sign a deed confirming this change of trustee?

A deed which confirms a change of trustee which took place in the past needs to be supported by documentation which clearly evidences the change of trustee at the time the change took place.

In the event that the deed comes under scrutiny in the future, a deed which confirms a historical change of trustee, without strong supporting evidence that the requirements of the relevant trust deed were met at the time of the change of trustee, would not likely be considered sufficient to evidence that the change of trustee took place at that time stated in the deed.

As such, if you are seeking to document a change of trustee after it has occurred, you should review your records to determine what evidence you have of the change of trustee.  This evidence must be contemporaneous, that is to say, it must be evidence from around the time the trustee was changed.

Ordinarily this documentation is annexed to a statutory declaration of an appointor, setting out matters including the details of the change of trustee [as supported by the evidence] and the reasons why that change was not documented at that time.

What type of evidence is required to show a historical change of trustee?

Depending on the circumstances, evidence which supports a historical change of trustee may include things like:

1. Correspondence, file notes or other written records showing for example discussions about the change of trustees, the dates when the change would occur and other related matters;

2. If there was a corporate trustee involved, minutes of meetings of the trustee showing that an appointment/removal was tabled, discussed and/or agreed;  or

3. Any other written document which sets out the intentions of the appointors to change the trustees of the trusts at that time.

Other evidence that may support the historical change of trustees, in conjunction with evidence as above includes:

4. Signed and/or lodged documentation including financial statements and tax returns from the relevant financial years; or

5. Other signed and/or lodged documentation which evidences the change of trustee prepared at or around the dates the trustees were changed, for example transfers of real property, transfers of other trust assets, bank account statements for the trusts or similar.

Conclusion

As you can see, preparing the documentation for a historical change of trustee is far more onerous and costly than the preparation of a deed contemporaneously at the time of the change.

Taking the time to take the steps to record the change of trustees at the appropriate time ensures that it is done correctly and will not open you up to risks which may arise at a later time if it is found that the change did not take place in accordance with the requirements of the trust deed.

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