Unfortunately yes it can. Losing the deed of a family trust can lead to significant legal and operational challenges, as the trust deed is the foundational document that governs the trust’s operations, specifies its beneficiaries, and sets out the trustee’s rights and responsibilities. Here’s what happens and how to address the situation:
Consequences of Losing the Trust Deed
- Legal Uncertainty: Without the deed, it becomes difficult to prove the terms and conditions of the trust, including the identity of beneficiaries and the powers of trustees. The trustee may not know what it can and cannot do within the terms of the trust. It may not know whether a person is or is not a beneficiary of the trust.
- Inability to Operate: Trustees may face limitations in managing trust assets or making distributions, as they must act within the framework of the deed. If the trustee does not know what its powers and restrictions are things can be brought to a halt and the very purpose of the trust- being to benefit certain family members can be frustrated.
- Tax Implications: The trust may fail to meet legal requirements to qualify as a trust for tax purposes, potentially leading to adverse tax consequences. The tax office might question whether distributions made to people as intended beneficiaries of the trust are actually valid if it cannot be proven who the beneficiaries are.
- Disputes: Beneficiaries may contest the administration of the trust if the terms cannot be confirmed, leading to disputes and potential litigation. What could go wrong? If a beneficiary or potential beneficiary feels aggrieved in relation to the trustee’s management of the trust they will commonly take legal steps to have the Courts intervene. One need only consider the situation of the Rinhart and Murdoch families to recognise the scope for disputes.
Whilst your trust might not be on the scale of the Rinharts or the Murdochs, the potential for chaos if the trust deed is lost is equally real. You can and should take steps as soon as possible to address the situation.
Steps you should take
- Search Thoroughly: Look for the deed in places it might logically be stored, if not at home that may be in places such as with solicitors, accountants, financial advisors, banks or in secure storage locations.
- Contact Original Parties: Reach out to the lawyer, accountant, or trustee who established the trust. They may have a copy or record of the deed. At minimum they may have a copy of the types of trust deed the firm was using at around the time that your trust was established. That may help you to convince a Court as to the likely terms and provisions of the missing trust deed if you need to take steps to have it reconstituted by the Court.
- Reconstruct the Deed: If no copy is available, you may need to reconstruct the trust deed. This involves obtaining affidavits from trustees and beneficiaries, stating their understanding of the trust’s terms. That evidence should then be presented to the relevant Court in your state to have any reconstruction approved by the Court.
- Seek Court Assistance: Apply to a court to reconstruct or validate a replacement deed based on available evidence. If this is done the trustee will have the protection of the Court if its past and future actions accord with the terms of the trust deed as reconstituted.
Prevention for the Future
Store the trust deed securely, such as in a fireproof safe or with a solicitor. Consider creating multiple originals when you establish a trust or multiple certified copies if only one original deed exists so to reduce risks associated with loss.
Need help with a lost trust deed? Contact our lawyers on 08 8344 6422 for advice on the best way to proceed.