The incidence of testamentary trusts, previously reserved for the wealthy and the ‘artful dodgers’ is increasingly a part of the estate planning of every-day society. These particular types of trust that only arise upon the happening of the death of the maker of the will, are invaluable in dealing with blended families, assets that would otherwise be subject to substantial tax or duty; and the maintenance of minor or disabled beneficiaries.
The freedom that these vehicles give in the estate planning process come at the expense of control. That might appear counter-intuitive as an argument because the terms of the trust are well established prior to the maker of the will dying. However, the trust has been invited into the mix and bring with it all of the complexities that have plagued the law of trusts for centuries. Not the least of which is the powers of the trustee at general law and the law’s own interpretation of certain terms and phrases in the trust document.
Even then, unintended consequences arise from situations that no one could have predicted when they were planning their testamentary dispositions. In Da Bruyn the testator had divided his state between his two sons. However, one son was disable by virtue of being compulsorily hospitalised for a mental condition so the share of the estate ear marked for that son was actioned via a discretionary testamentary trust.
The Department of Community Services took the assets into account for means test purposes and disqualified the second son for subsidised care. The trustee of the estate sought declarations about the discretionary nature of the trust. Despite that being resolved successfully, there was much deliberation about the world “or” and whether or not it should have been “of” which highlights the depth to which the Court will inquire.
The complexities of the testamentary trust were so great for one Western Australian trustee that it in fact caused him to take no action at all. Unconvinced of his power to do what the beneficiary was requesting him to do and convert certain pension assets held by the estate into an investment accessible to the beneficiary, he held of administering the estate and forced the beneficiary to bring an application for the Court to direct him to take certain actions.
There was doubt over whether or not the terms of the testamentary trust empowered the trustee to do what was being asked. In concluding that there was scope for the trustee to do what the beneficiary wanted, the Court was forced to imply certain powers by broadly reading one clause of the trust deed. None of what was being ventilated in the Court would have been the subject of any deliberations by the testator, who at the time of making the will was concerned with ensuring that the beneficiaries received the proceeds of his compensation claim in the most efficient way possible.
In such circumstances, efficiency of administration and the wishes of the testator are not the primary considerations of the Court. There is however, an almost manufactured result when there is not really a dispute in play and no person is resisting the rights asserted by any other. The Court is then charged with the responsibility of ensuring prudent administration takes place in a just manner, while at least attempting to have the parties leave with what they came for.
The most careful drafting and planning will only ever account for the majority of situations.Parties that are engaging in estate planning and structuring must be cognoscente of the significant prospect of confusion about the terms of their testamentary documents and the likelihood that it will lead to some interpretation, re-classification or even re-drafting because of confusion, dispute or even changes in the law itself.