What is a “Trust”

The majority of superannuation funds are based on the legal concept of a “trust“.

A trust is not a juristic person with a legal personality distinct from that of the trustee and the beneficiaries.

A trust exists when the holder of a legal or equitable interest in certain property is bound by an obligation cognisable and enforceable in equity, to hold that interest not for his own exclusive benefit but for the benefit, as to the whole or part of such persons, or for some object or purpose permitted by law {Registrar, Accident Compensation Tribunal v Commissioner of Taxation (1993) 178 CLR 145 at 175 per Brennan, Dawson and McHugh JJ}.

Brennan, Dawson and McHugh JJ state at [1]:

Trust is the creature of equity. It is of the essence of a trust that it is cognizable by a court of equity ((61) Sturt v. Mellish [1743] EngR 82; (1743) 2 Atk 610, at p.612 [1743] EngR 82; (26 ER 765, at p.766); Burgess v. Wheate [1757] EngR 5; (1759) 1 Eden 177, at pp.218, 223 [1757] EngR 5; (28 ER 652, at pp.668, 670); In re Williams; Williams v. Williams (1897) 2 Ch 12, at p.19.). A relationship which obliges one person to pay money or to transfer property to another may exhibit the features of a trust for the benefit of the other, but there is no such trust unless the obligation is enforceable in equity.

Professor Scott in The Law of Trusts (4th Ed) – Scott and Fratcher has provided the following definition:

 “The trust is the whole judicial device: the legal relationship between the parties with respect to the property that is its subject matter, including not merely the duties that the trustee owes to the beneficiary and to the rest of the world, but also the rights, privileges, powers and immunities that the beneficiary has against the trustee and against the rest of the world.”

There are four essential elements present in every form of trust:

  • The Trustee or Trustees
  • The Trust Property
  • The Beneficiary or beneficiaries, and
  • The personal obligation annexed to the property

 

First there must be one or more trustees, individual or corporate, who together hold the legal interest in the trust property. Trust obligations attach not only to a nominated trustee, as in an express trust, but also to any person in whom the trust property is vested {such as a Trustee de son tort}.

In equity a trust will not be allowed to fail for want of a trustee in office.

The second element is that there should be property capable of being held on trust {The Public Curator of Queensland v The Union Trustee Co of Australian Ltd (1993) 31 CLR 66 at 74-5, per Higgins J.} There must be certainty in identification of the property bound by the trust {Herdegen v Federal Commissioner of Taxation (1998) 84 ALR 271 at 277-80}.

Thirdly, there must be a cestuis que trust or beneficiary. A trust may be created without communication to the beneficiary {Middleton v Pollock (1876) 2 Ch D 104 at 106 per Jessel MR; Rose v Rose (1986) 7 NSWLR 678 at 696 per Hodgson J}.

There is no requirement that the beneficiary at the time of the creation of the trust be a person then in existence, for there may be a trust for an unborn person. Likewise there may be a valid trust in favour of a class of persons, the exact constitution of which is unknown at the time of the creation of the trust {for example an occupational pension scheme}.

A “beneficiary”, in ordinary language, is a person for whose benefit a trust is to be administered and who is entitled to enforce the trust according to its terms {Kafataris  v The Deputy Commissioner of Taxation [2008] FCA 1454}.

Excluding charitable trusts, a trust must have definite and identifiable beneficiaries.

This is known as the “beneficiary principle“, the classic statement of which is that of Sir William Grant MR in Morice v Bishop of Durham (1804) 9 Ves 399 at 404-405; 32 ER 656 at 658:

… there can be no trust over the exercise of which this court will not assume a control: for an unaccountable power of disposition would be ownership and not trust.If there is a clear trust but for uncertain objects, the property that is subject to the trust is undisposed of an the benefit of such trust must result to those whom the law gives the ownership in default of disposition by the former owner …. Every trust must have a definite object. There must be somebody, in whose favour the court can decree performance

On appeal {Morice v Durham (The Bishop of) (1805) 10 Ves 522; 32 ER 947}, Lord Eldon LC, explained the rationale behind the principle of control and enforceability as based on the possibility that the court might be called upon to step in and administer the trust or to direct distribution to some person.

The fourth essential is that the trustee must be under a personal obligation to deal with the trust property for the benefit of the beneficiaries, an obligation giving rise to correlative rights in the beneficiaries. The obligation must be annexed to the trust property. This is the equitable obligation proper. {Refer to DKL Holdings Co (No.2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 at 518-19}.

 

 

 

There are three components of a trust:

  • (i) the person who creates the trust, which can be a legal person such as a company (the “Settlor“)
  • (ii) the Trustee or Trustees
  • (iii) the beneficiaries of the trust

The law places special obligations on people who accept the office of trustee and Trustees are personally liable to the beneficiaries if they commit a Breach of Trust that results in a loss to the beneficiaries of the trust.

The law also gives important right to the beneficiaries of the trust to enable them to “police” the Trustees who have direct control of the beneficiaries money.

It is therefore important to understand these rights and to excise these rights.

Many Australians are or were members of superannuation funds established by their employer (or employers).

There are different types of superannuation funds which offer different types of benefits and so it is easy for members to be confused as to their entitlements and it is easy for dishonest trustees to misrepresent the legal rights of members of the fund they administer.

Superannuation benefits are not paid directly by employers but are paid out of one or more trust funds administered by a “independent” trustee.

The trustee must act strictly in accordance with the founding Trust Deed of the fund as lawfully amended. The trustee cannot “act under the dictation” of the sponsoring Employer.

Superannuation trusts (funds) can have a long history and it is very important that members understand the history of their fund and their legal right to obtain information with respect to the history of their fund.

Many older Australians joined Defined Benefit superannuation funds where their retirement benefit is determined by a formula contained in the “terms of the trust”.

In many cases the formula will have been altered over the years, however the formula if altered should always increase benefits and not decrease of eliminate benefits.

If you are or were a member of a Defined Benefit superannuation fund then it is very important to check the history of your fund by requesting copies of all the Deeds of your fund (or other instruments in writing) from the Trustee of your fund. The Trustee must provide copies of all the Deeds “free-of-charge” to any person who has a beneficial interest in the superannuation trust.

The Trustee has to pay benefits in accordance with the founding Trust Deed as lawfully amended.

It is an extremely easy way for a dishonest Trustee to steal large amounts of “other people’s money” by concealing the founding Trust Deed and to substitute what looks like a legal document, but what is in fact a fraudulent document providing much lower retirement benefits. The fraudulent document results in a large “actuarial surplus” in the fund, which the dishonest trustees then set about to steal.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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