The problems that can flow where a family trust is established without an appropriate general power of variation in the trust deed was highlighted in a recent Supreme Court decision, reported in Thomson Reuters Weekly Tax Bulletin Issue 34 (9 August 2013).
The case involved a family trust established in 1970 by Mr Synman. The trust deed requires the trustee to hold the trust property until the vesting date, namely, upon the death of the survivor of Mr Synman (age 71) and his wife (who died in 2010). On the vesting date, the trustee is directed to distribute the trust property among their children. Mr and Mrs Synman had 2 daughters (each of whom have 2 children, so that there are 4 grandchildren of whom 3 are under age 18). The effect of the trust is that the grandchildren only acquire an interest in the income of the trust if their mother is deceased and the trustee has failed to exercise a discretion to make a distribution of trust income. The trustee applied to the Court seeking to vary the trust to give the trustee a general power of variation to give effect to the intention of the benefactor.
In dismissing the application, the Supreme Court of Victoria refused to approve the variation to the trust as it was not satisfied that granting such a wide power of variation would be for the benefit of the grandchildren (who were incapable of consenting to the changes). The Court noted that a proposal to vary a trust cannot be approved under s 63A of the Trustee Act 1958 (Vic) unless it would be for the benefit of those who cannot consent. While some of the proposed variations were likely to benefit the grandchildren, the Court noted that granting the trustee the power to vary the trust would not be limited to those variations foreshadowed by the trustee. Instead, the Court suggested that the appropriate path is for a trustee to seek the Court’s approval of an arrangement to vary specific provisions of the trust deed (rather than a general power of variation).
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