The recent New South Wales Supreme Court decision in Stein v Sybmore Holdings provides a potentially valuable avenue for the postponement of an impending vesting date of a family trust.
Facts
Mr. Stein arranged for a discretionary trust (administered by Sybmore Holdings Pty Ltd as trustee) to provide for his wife, children and grandchildren after his death. The trust was settled on 1 April 1978 and intended to vest on 23 December 2007 (earlier than the statutory limit of 80 years from the date of settlement).
The majority of the trust assets comprised property with accrued capital gains. The automatic vesting of the trust in December 2007 would have crystallised these capital gains and created a substantial capital gains liability for Mr. Stein’s wife and children. It would also have resulted in the imposition of sizeable stamp duty liabilities on these beneficiaries, in the event that the properties were transferred to them. Furthermore, Mr. Stein’s children were unmarried and childless. Hence, the vesting of the trust in 2007 would also have prevented potential grandchildren from benefiting under the trust. In order to defer the tax and duty liabilities for the present beneficiaries and maintain the trust for intended future beneficiaries, Mr. Stein was eager to postpone the vesting date. However, the clause of the trust deed which provided for the variation of the trust did not allow the trustee to vary the vesting date.
Consequently, Mr. Stein (supported by his wife and children in their capacity as beneficiaries) made an application to postpone the vesting date under Section 81 of the Trustee Act (1925) NSW (“the Act”). Section 81(1) provides that a court may choose to bestow on a trustee powers to amend the trust deed which are not provided in the deed itself. Section 81(2) provides that a court may choose to authorise a trustee to perform specified acts of which the trustee is not authorised to perform under the trust deed.
The decision
Campbell J first considered whether Section 81 could be used to empower a trustee to alter the trust deed, in circumstances where this alteration would affect the beneficial interests under the trust. He found that Section 81 could be utilised in these circumstances, particularly when the alterations were intended to enhance the ‘expedient’ management and administration of trust property.
The judge then moved on to assess whether Mr. Stein’s application satisfied the requirements of Section 81(1). Section 81(1) requires that the alteration of the trust deed be expedient for the management and administration of the trust property. In order to determine whether extending the vesting date would be expedient, he considered whether it would serve to achieve the objectives of the trusts i.e ‘trust, these objectives being the provision of benefits to Mr. Stein’s wife, children and grandchildren after his death’. Campbell J noted that postponing the vesting date would allow Mr. Stein’s grandchildren to benefit from the trust and minimise the imposition of tax and duties on the trust property. His Honour held that the alteration of the trust deed would go to achieving the objectives of the trust and hence that the requirements of Section 81(1) were satisfied and empowered the trustee (Sybmore Holdings Pty Ltd) to postpone the vesting date.
Campbell J observed that he probably would not have approved the postponement of the vesting date, if this had meant that the trust would operate for a period longer than the perpetuity period permissible under statute.
His Honour further noted that it was not necessary to assess whether Mr. Stein’s application would have succeeded under Section 82(2), in light of its success under Section 81(1).
Implications for trusts
Trustees may be able to obtain an order from the court empowering them to alter a trust deed, even where such alterations would affect the beneficial interests under the trust.
Trustees of trusts with a vesting date of less than the statutory limit may be able to defer tax and duty liabilities on trust property, by applying for a postponement of the vesting date.
