The New South Wales Supreme Court was asked to consider the validity of a transfer of shares from a family trust to the two sons of the deceased.
The deceased was the trustee of the trust. The trust held shares in a company worth in excess of $8m dollars.
The beneficiaries of the trust were the deceased’s two sons. The two sons only became aware of their entitlement to the shares upon the deceased’s death. Pursuant to the terms of the trust, the trust was to vest when the sons each turned 25 years old, however the shares were never transferred to them during the deceased’s lifetime.
The executors of the deceased’s estate sought advice as to the most appropriate manner in which to deal with the shares in the trust. The executors were advised by their solicitor that as the shares were held in the trust and not personally held by the deceased they did not form part of the deceased’s estate. They were advised to transfer the shares to the deceased’s two sons as the beneficiaries of the trust. The executors took the solicitor’s advice and proceeded to transfer the shares to the deceased’s sons.
The sons questioned the executors’ ability to transfer the shares to them and initiated the proceedings to ensure that the shares were transferred correctly and sort confirmation that no dispute could arise in the future as to that transfer. The Court considered the terms of the trust deed. The trust deed contained a power to appoint a new trustee. The deceased did not exercise that power during his lifetime. Consequently, the trust deed stated that if no trustee was appointed then “such power is vested in the Executor of the will of the Trustee and shall be exercised by deed.”
The Court was asked to consider the correct interpretation of this particular clause and whether it gave the executors the power to transfer the shares to the sons.
It was held that the wording of the trust deed did not automatically appoint the executors as the trustees of the trust but rather gave the executors the power to appoint a trustee. Therefore as the executors did not appoint themselves as trustees, there was no trustee of the trust and consequently no person authorised to transfer the shares.
Pursuant to the terms of the trust deed, the executors would only have the power to transfer the shares if they had first been appointed as the trustee.
Whilst the executors did not strictly comply with the terms of the trust deed the Court took into consideration the fact that they acted on advice from their solicitor and that there was no basis for the transfer of the shares to the sons to be disputed by any other party. The Court therefore accepted the transfer of shares to the sons.
Comment – If you are a trustee of a family trust it is important, as part of your estate planning, to consider the terms of the trust deed carefully. In particular it is essential to be aware of who holds the power of appointment and will act as trustee so that control can be transferred appropriately to future generations upon death. As seen in this case, executors will not always have automatic control as trustees.