Old trust deeds, modern challenges: court approves trust amendments (including tax benefits) in absence of amendment power

By Laura Spencer (Senior Associate) and Jack Stuk (Principal Solicitor)

As we head towards the end of the financial year, our focus often turns to tax planning and future strategies. However, a recent trust case has emerged, reminding anyone working with trusts to reflect on the past while balancing the needs of current and future generations.

The case, Re EM McPherson Settlement [2024] VSC 744 (McPherson), serves as an important reminder of the consequences when a trust deed lacks the modern flexibility and provisions that we often take for granted. Family and other trusts typically last for many generations – in South Australia, some can even exist indefinitely! Over time, laws change, particularly federal and state tax laws. As a result, trust deeds may need to be updated to ensure they remain commercially viable and continue to serve both family and tax planning purposes. McPherson highlights that making these changes is not always straightforward.

THE ISSUE IN MCPHERSON

In this case, the trust deed was not only an old deed lacking many trustee powers we expect in today’s deeds, but it also lacked a variation/amendment power generally found in modern and well drafted old deeds. Without such a power, the trustee was unable to introduce the flexibilities required to allow the trust to operate efficiently including, under current tax laws.

The trustee therefore sought approval from the Court under section 63A of the Trustee Act 1958 (Vic) to make several amendments. The key changes requested, and their outcomes were as follows

Extension of vesting date: APPROVED

Most modern trust deeds adopt the standard perpetuity period of 80 years, except in South Australia, where there is no maximum perpetuity period. Notably, in Queensland, it has been recently extended to 125 years.

In McPherson, the original vesting date of the trust was 30 June 2030. However, the Court approved an extension of the vesting date to 80 years from the creation of the original deed in 1972 (making it 30 June 2052). In making this decision, the Court carefully considered the interests of all beneficiaries, including existing, minor, and unborn beneficiaries, who the Court noted would all benefit from the extension.

Importantly, for the current beneficiaries, the extension deferred a perceived adverse taxation consequence that would have arisen from the early vesting of the trust (ie 30 June 2030). While the Court acknowledged that tax planning was a significant motivation for seeking the extension, it clarified that this alone was not a sufficient reason to decline the application. In light of the tax consequences, both the Federal Commissioner of Taxation and the Commissioner of State Revenue were informed of the proceedings, however, both declined to join the proceedings.

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