A super fund is a special kind of trust, and the most important document of any trust is its trust deed. Typically, the trust deed identifies the trustee, the beneficiaries and sets out rules for the administration of the trust. Unlike companies, there is no central register of trusts, and care must be taken to preserve the trust deed.
A recent case Re Barry McMahon Nominees Pty Ltd [2021] VSC 351 concerning the consequences of a lost trust deed of a family trust is also worth noting in relation to SMSFs.
The case concerned the Mantovani family. Vincenzo and Teresa had four children, all now in their 60s: Nicola, Salvatore, Carmine and Giovanni. The Mantovani Family Trust had been established in 1976 with Vanta Pty Limited as its trustee, and shortly afterwards a number of properties owned by Vincenzo and Teresa were transferred to the Family Trust. Teresa died in 2015. Giovanni had lived in one of the Family Trust properties for his whole life. He claimed to have spent substantial sums of money maintaining and improving the property, and that Teresa had told him that the property would be his upon her death. All parties agreed that the Trust had been established, but the only document that could be found was a schedule to the original trust deed containing details of the date of establishment of trust and the identities of the settlor, the trustee and the beneficiaries. The trust deed itself could not be found, despite extensive searches. Giovanni was not a beneficiary of the Family Trust.
Giovanni asked the court to rule that the Family Trust failed due to the lost trust deed, and that consequently the property he lived in was actually part of Teresa’s estate.
The court considered the following questions:
- Is the deed lost?
- If the deed is lost, can secondary evidence (the schedule to the trust deed and the tax returns and financial statements of the Family Trust) be relied upon to prove the existence of the contents of the deed?
- If not, does the Family Trust fail for uncertainty?
The court considered that reasonable searches and enquiries had been made with all persons, legal and accountancy firms and authorities, that could reasonably be expected to hold a copy of the deed, and that is was lost.
Consequently, the court ruled that the Family Trust failed for uncertainty. As there was effectively no Family Trust and Teresa had provided the bulk of the trust property, in the end Vanta Pty Limited was considered to hold the properties for the benefit of Teresa’s estate.
This decision has significant implications for an SMSF where the trust deed has been lost. Potentially, all trust property might be transferred back to the persons who transferred it to the SMSF in the first place. Would this include repayment of employer contributions? Typically, SMSF trust deeds are updated by entirely replacing the existing deed with a new deed. Ideally, there should be a complete chain of documents from the original deed establishing the fund to the most recent update. What if more recent updates can be found, but there are gaps in the chain? It is not clear what the attitude of the courts would be in such a situation. Comments by the judge in this case seem to indicate that the courts are more favourable towards a fund which proactively seeks assistance from the court to remedy such a problem than ignoring the situation, but of course the cost of such proceedings must be considered.
A lost SMSF deed may require the trustee to seek legal advice, but your Nexia advisor would be pleased to discuss potential courses of action if you find yourself in this position.
