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Take care when amending the vesting date of a pre 84 deed

13 April 2017

You’ve just come back to work after being on medical leave and are excited to receive a call from a longstanding client, Molly, who wants you to act for her regarding a purchase of an investment property for $3 million. Molly tells you the purchaser will be Edlly Pty Ltd as trustee for the Moed Family Trust. The Moed Family Trust was established in 1967.You phone the vendor’s solicitor to give her the purchaser details.

The contract arrives and you pick up on a few issues requiring amendment. The contract is amended, Molly and her 2nd husband Ed, sign as directors of Edlly Pty Ltd and it is then exchanged.

After exchange Molly drops in to talk to you. She has a letter from her bank requesting a change to the deed so there is an express power for the trustee to borrow.

You review the deed to make sure it can be amended. You see there is a wide amendment clause with the only restriction being that any amendment must comply with the rule against perpetuities.

As part of the review process you decide to also check the vesting date and see the definition includes not only 21 years after the death of the last survivor of King George VI alive when the deed was signed but also the 50th anniversary of its signing – about 2 months away.

You prepare an amending deed to include the power to borrow and change the vesting date to 80 years. The Moed Family Trust was created in 1967 so with the amendment, the vesting date is extended until 2047 rather than 2017.

You call Molly to let her know you’ve fixed the deed and also ‘fixed up an issue with the vesting date which I picked up on when reviewing the deed.’ Molly laughs and says ‘you’ve still got it’ and you hang up feeling pretty chuffed with yourself.

The sting

About 6 months later you receive a phone call from Molly. She had an old letter from the bank’s legal department stating that whilst the amending deed had given the trustees the power to borrow, they believed there was a problem with the amendment to the vesting date. Surprised, you ask Molly to send a copy of the letter. You think to yourself how unusual it is for a bank to settle on a matter when there is a problem with the trust deed, so it can’t be anything too earth shattering.

The letter arrives and your heart sinks as you read it, remembering what you learned in Equity and Trusts at university.

The amendment to the vesting date was ineffective because the 80-year perpetuity period, introduced by the Perpetuities Act 1984, only applies to trusts created on or after 31 October 1984.

Because the trust was created in 1967, the old rule against perpetuities applies which means the deed specifying a vesting date 80 years in the future is void.

Because the amendment was ineffective, the Moed Trust has vested. The default beneficiaries are ‘children of any of the first group beneficiaries’. The first group beneficiaries are Molly and her ‘spouse’. Molly has 3 adult children, Justin, Olivia and Lauren. Ed never had children. So, Edlly Pty Ltd now holds the property on trust for Justin, Olivia and Lauren.

Molly is extremely upset about this. They had a big falling out with Justin about 5 years ago. Justin is an accountant and was managing Molly and Ed’s affairs until they became aware that he had been ripping them off.

Whilst Molly doesn’t mind Olivia and Lauren having a share in the property, she definitely does not want Justin to have a share. Furthermore, because both she and Ed are now retired, her intention was for herself and Ed to benefit from the income generated by the property.

She instructs you to transfer the property to her and Ed. ‘Okay’ you say, ‘but I’m really sorry to say you’ll have to pay stamp duty.’ ‘So how much will that be?’ She asks. With a lump in your throat you reply ‘It will be about $150k’.

You can’t help but wonder why you came back from medical leave………

By Amanda Tully

This article is general information only and should not be relied on without obtaining further specific information.

Amanda Tully Business Lawyer / Director

Amanda Tully is a business lawyer whom acts for clients on a wide range of business succession and other commercial matters. Amanda’s experi.. Learn more about Amanda Tully

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