In our webinar on Traps in Trustee Resolutions, Adrian Bailey made the point that one of the most crucial steps in preparing trustee resolutions to distribute income is to “read the deed”. It’s the mantra of all trust lawyers.
It is even more important when using “template resolutions” from year to year. Interrogating the trust deed to determine things like the identity of beneficiaries; powers to distribute income and/or capital; and how income is defined, are vital in getting it right.
A recent example of just how bad it can get when you don’t “read the deed” was before the Queensland Court of Appeal in Benaroon Pty Ltd v Larmar & Ors  QCA 62.
Benaroon was the trustee of a discretionary trust established in 1977 on the instructions of Mr Lamar, the sole director of the trustee (at the time of the hearing).
Since its creation, Benaroon had made distributions to Mr Larmar and to his then wife, Suzanne Larmar. Mr Lamar and Suzanne divorced around 2006. Subsequently, the trust distributed to Margaret Larmar, the current wife of Mr Larmar.
Through all that time Mr Lamar believed himself to be a beneficiary of the trust. Because of this, he believed that his “spouse” (both Suzanne and Margaret) were also beneficiaries. But, that was not the case.
Benaroon sought a declaration that the trust be “rectified” so that Mr Lamar was a named beneficiary and the first Mrs Lamar was, therefore, also a beneficiary. A lot was riding on the decision. As noted in the judgement:
In the absence of rectification of the trust deed to add Mr Larmar as a beneficiary, any distribution to him (and his former and current spouses) will have been made without authority. Rectification [was] opposed by Margaret Larmar, in relation to whom the Australian Taxation Office took the view, after an audit, that she would be entitled to a tax refund if not a beneficiary of the LFT, but would have a tax liability of nearly $8 million if she is a beneficiary.
Ultimately, rectification wasn’t granted. Like many cases before this, evidence was lacking because evidence can be difficult to adduce over 40 years after the event.
However, this case begs the question - “Did no one ever read the deed?”
Presumably, Benaroon used accountants and lawyers in the 40 years of the life of the trust. Maybe not. If Benaroon did, did no one ever pick up the deed and say, “But Mr Lamar, you and Mrs Lamar aren’t beneficiaries!”
“Read the deed” is not merely a catch cry. It’s a vital step in producing yearly trustee resolutions. Not doing so, can lead to disastrous outcomes. Although, in this case, Suzanne would have been very happy with the outcome!
If you’d like to know more or talk about your trustee resolution templates, please get in touch with one of our specialist trust lawyers.