We commonly encounter deeds of variation which purport to amend a provision in the schedule of a trust deed, such as changing an appointor or removing a beneficiary.
Unfortunately, a number of these variations are invalid as the power to vary the trust deed which was relied upon does not permit variations to the schedule of the trust deed.
The issues in this regard were explored in detail in a Queensland Supreme Court case, Jenkins v Ellet [2007] QSC 154.
That case involved a variation to the George Jenkins Family Trust, a trust established in 1996.
The original trust deed nominated an individual, George Jenkins, as a primary beneficiary, one of two trustees and the sole principal.
The trust deed contained a variation power which read (emphasis added) as follows:
‘The Trustee may by Deed revoke add to release or vary all or any of the Trusts declared … but so that the Trustee shall not have any power to revoke add to or vary any of the Trusts so that the Settlor may acquire a beneficial interest in the Trust Fund or any part of it… Upon this exercise of any release and revocation pursuant to this clause the power so released and revoked shall be absolutely and irrevocably determined.’
In 1999, George Jenkins exercised his power as the sole principal of the trust to remove his co-trustee and appoint his daughter, Joyce Ellett, as the new co-trustee.
Immediately after the change of trustee, George and Joyce Ellett (as trustees of the trust) executed a deed of variation relying on the variation power above, purporting to remove George as the sole principal and appoint Joyce as the new principal.
George had been named as the principal of the trust in a schedule to the trust deed and the schedule also specified that upon his death, his executor became the new principal.
Following George’s death in 2003, his granddaughter Georgina (who was named as the executor of his will) obtained probate and purported to use her powers as the principal of the trust to appoint a new trustee.
The fundamental issue in contention was whether the 1999 variation appointing Joyce Ellett as the principal was effective and in particular, whether it was a valid exercise of the variation power in the trust deed.
In particular, the case hinged on whether the reference to the trustee being able to vary ‘all or any of the Trusts declared’ should be interpreted as allowing the trustee to vary a provision in the schedule to the trust deed.
Joyce Ellett’s lawyers argued that the variation power was intended to allow variations to ‘the trust constituted by and comprised in’ the trust deed and its schedule.
Conversely, Georgina Ellett’s lawyers argued that the variation power was expressly limited to varying the ‘trusts’ (which were declared in earlier provisions of the trust deed) and did not allow an amendment to the schedule.
The Court held:
‘The power to amend in clause 11 is not to amend “the trust constituted by and comprised in this Deed and the Schedule” but the “Trusts declared”, namely those declared in clause 2.
…
It would have been easy for the drafter of the deed to provide the trustee with a board power of amendment of “this Trust” which is defined in clause 1 to mean “the trust constituted by and comprised in this Deed and the Schedule” or of the deed and the schedule as a complete document if that were intended.
…
The limitation of the trustee’s power of amendment to the trusts declared, where those trusts were subject to the powers and provisions contained in “this Trust”, has led me to the view that clause 11 should be construed so that its powers of amendment do not extend to a provision such as the definition of the Principal in the schedule to the deed.’
The Court ruled that the deed of variation removing George as the principal was invalid, as it was outside the scope of the variation power.
If you have any queries in relation to an existing or proposed trust variation, please contact Patrick Ellwood on 0400 503 111 or patrick@cloverlaw.com.au.
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