Australian Trusts and Trustees Act - Essay Example

Word count The Bedford Trust In 1951 The Congregation of Religious Sisters of Charity of Australia, a congregation of Catholic nuns, who had been actively involved building hospitals in other part of Australia, needed a land to build a hospice in the state of Queensland, Australia. At about the same time, Mary Bedford was the registered owner of a house in Main Street, at Kangaroo Point, she purchased in 1926, in conjunction with her long-term companion, Dr. Lillian Cooper. The house occupied a land which was about one acre and seventeen perches in area, and it stood next to a cliff at Kangaroo point, overlooking the river, part of it stretching to the base of the cliffs, and to a land at the base of the cliffs beside the river. The house was transferred to the congregation on a settled trust which terms included; a.) That the congregation would establish and maintain a hospice in perpetuity on the land, for the poor sick and dying in honour of the life and work of Dr Lillian Cooper, and the Hospice was to be known as ‘Olivetti Hospice’. b.) That the land would never be sold, or given out in exchange for anything else by the congregation. No fund was involved the transfer when the trust was settled. The congregation bore the cost of building and operating the hospice built on the donated land. However, the congregation soon encountered some difficulties in both the size of the land and access into it as soon as planning began for the proposed Hospice. Over the years, the difficulties have been resolved, first, by the closure of the adjoining street, and by the acquisition of other land in years subsequent to 1952. The Hospice was opened in 1957, together with a convent and a chapel. Since that time, the hospice has been renovated and modernized considerably, more levels and building having been added. This means, therefore, that the original hospice building is located on three different land, comprising the land donated by Miss Bedford, the obtained through the closure of street, and other land which were acquired over the years since 1952. The additional facilities constructed on the land subsequent to 1952 include; the Marycrest Retirement Centre for low care residential aged care, and the Lillian Cooper Nursing Home for high care residential age care, both operated under the name ‘Caritas Care’. In summary, the aims and purpose of the care include to ensure that; a.) A facility designed to meet the physical and emotional need of the aged and terminally sick who are poor was established and maintained in perpetuity b.) Dr Lillian Cooper’s life and work was commemorated by the said facility c.) The facility’s name is ‘Olivetti Hospice’. d.) The land remained protected from sale or exchange for anything. Was the term of the Trust being kept? First, the congregation had in 1962, agreed to a land swap with the Commonwealth of Australia to swap a part of the original land with a different parcel of land owned by the Commonwealth, but which was adjoining the trust land. This action was in not in conformity with the terms of the trust, to the effect that land would never be sold or be exchanged for anything, therefore, conclusion can be drawn that the term of the trust was not being kept in this regard. The original Bedford trust land has been blended into a larger parcel of land, which was created in 1976, and is used for the mission of the congregation and not for the purpose of the trust, as spelt out in the term of the trust, sees Baker v Archer-Shee (1927) AC 844. This action was also in discord with a term of the trust that demanded that the land be used for a hospice in perpetuity for the sick and dying who were poor. The amalgamation of the original Bedford Trust land into the new land, used for the mission of the congregation meant the term of the Trust in this regard was not being kept. The Mount Olivet Hospital providing other cares other than the care expressed in the term of the Trust means the term of the Trust is not being kept in this regard. Admission into the care facility, under the term of the Trust, would be limited to those who are poor. That admission into the hospital is open to those other than the poor means the term of the Trust is not being kept. The name ‘Mount Olivet’ is longer in use for the hospital, it is now called St Vincent’s Hospital Brisbane, effectively meaning that the term of the Trust to the effect that the hospice shall be known as ‘Mt Olivetti Hospice’, has not been kept. What was the applicant seeking from the court? The applicant was seeking declarations regarding the purpose and structure of the Bedford Trust. Declarations to the effect that: i.) The purpose of the Bedford Trust has ceased to provide a suitable and effective method of using the trust property – Section 105(1)(d); Section 105(1)(e)(iii) of the trust Act ii.) St Vincent’s Healthcare Limited is the trustee of the Bedford Trust. The applicant was also seeking an order under Section 106 of the Trust Act of 1973, to the effect that orders be issued that would allow: i.) St Vincent Hospital continue in the provision of care for all for all inpatient as well as providing palliative care services ii.) Continue in the provision of care for all including the poor iii.) The hospital retain the name ‘St Vincent Hospital’, while the name ‘Mount Olivet Hospice’ will continue to be in use for the palliative unit of the hospital The applicant was also seeking orders regarding the administration of the trust under the new scheme of things. In this regard therefore, the applicant was seeking these orders from the court. i.) The congregation of the Religious Sisters of Charity of Australia be relieved from any liability arising from the amalgamation of the original title of the trust property with adjoining land. ii.) The congregation be relieved of any liability arising from the transfer of part of the trust property to the Commonwealth of Australia iii.) The congregation be relieved of any liability that arise from transfer of trust property to St Vincent healthcare limited iv.) Following the diminution of the religious sister constituting the congregation, the Roman Catholic Church created the Mary Aikenhead ministries to continue the mission the congregation had before now carried out. The applicant therefore sought an order declaring the third applicant the trustee of the trust. v.) The congregation be relieved from any liability that might arise from the transfer of the trust property to Brisbane city council. What breaches of the Bedford Trust had occurred? First, there were three instances when changes were made on the property with authorization. In 1962, the Congregation made a land swap with the Commonwealth government. Part of the parcel of land which was located at bottom of the Kangaroo Point cliffs on which the Hospice could have been built, and the swap was effected without court approval In 1976, part of the land was transferred to the Brisbane city council on condition that were not made known to the court. The hospice was providing care for the everyone, and although this is a requirement of the national healthcare law, it was nevertheless a breach of trust, as court declaration was not sought. The property was serving both as an inpatient and palliative facility. No order was sought from the court before this action, so it was a breach. The name of the property was changed from Olivet Hospice to St Vincent Hospital, a action undertaken without prior court order. Was the term of altered? While the term of the trust would have been easily kept in 1952, it is now in this age financially unrealistic to keep it. The court in acknowledging the present situation of things, made some declarations and orders that effectively altered the terms of the trust. a.) First, the Australian Medicare agreement made it an obligation for every public hospital to provide care to every Australian citizen and every eligible foreign patient regardless whether they are poor or not. Olivet Hospital could therefore, not be operated exclusively for the poor. In issuing order that effectively validated the use of the hospital under the new scheme of things, the court has therefore altered the term of the trust. b.) The cost of providing palliative care has from the years subsequent to the 1950s become considerably greater than it was when the Hospice was established. The order validating the use of the facility for inpatient and palliative purposes has in this regard altered the term of the trust. c.) The name of the facility in accordance with the provisions of the term of the trust was ‘Olivet Hospice’. In years subsequent to 1952, the name has been changed from ‘Mount Olivet Hospice’ to ‘Mount Olivet Hospital’, and finally to ‘St Vincent Hospital’. The court order validating this change of name has effectively altered the term of the trust. Was a breach of trust found? Although technical breaches were acknowledged, by reason of the court judgment, no breach can be said to have be found. Three changes were made three times to the trust property, each technically constituting a breach. a.) A part of the Bedford trust land was swapped for another b.) The original Bedford land was amalgamated into a larger parcel of land. c.) A part of the trust property was transferred to Brisbane City Council. However, the court exercising powers afforded by section 76 of the Trust Act, concluded, having examined every presented evidence i.) That the congregation has at all time acted honestly ii.) The trustee was not acting for reward iii.) That the making of the land swap, the amalgamation of title, and the making of land transfer to Brisbane City Council were all reasonable actions. iv.) That the breaches ought to be excused. (see The Congregation of the Religious Sister of Charity of Australia v The Attorney General (2011) QSC 100; National Trustees Co of Australasia Ltd v General Finance Co of Australasia Ltd (1905) AC 373). The orders among other things therefore, relieved the Congregation of any liability that might have arisen from the transfer of part of the trust property Brisbane Council. The court also relieved the former trusting from any liability that might have arisen from the land swap that occurred on 13 march of 1962. The former trustee was also relieved from any liability that might have arisen from the amalgamation of the original title of the trust property with the other adjoining land beneficiary owned by the former trusting. If the court acknowledge no breach, therefore, it can be concluded that no breach was found. The management structure of any given business is usually dependent on the structure of the business. The management structure required in the management of a trust, can be fundamentally different from the management structure involved in running a partnership or a company. The structure of ownership behind a business and the cost of establishing it are important to the way management is structured. Aspect of taxation and asset protection must be thoroughly considered at the commencement of business. It recommended that advisers, including accountants and lawyers be involved in the process as a way of making sure that rights and obligations are protected and honored. Ownership structure in a business could be a partnership, trust or a company. Partnership Partnership is a relationship between two or more person carrying on a business with a view of making profit. It as a contractual agreement, between two or more parties to enter into a contractual legally binding relationship with a view of making profit. Partnership is understood to insinuate mutual participation according Tindal CJ in Green v Beesly (1835) 2 bing NC 108 at 112. Partnership law is derived from case law and from statute law, the relevant legislation being found in the partnership Acts of various states. However, partnership Acts, though different and a level of similarity. The liabilities in a partnership is usually not limited as asserted by E. R. Hardy Ivamy and D.R. Jones, Underhill’s Principles of the Law of Partnership (12th ed, 1986), and partners would need to make sure their legal agreement deals with establishment, operation, and dissolution of the partnership. The contractual agreement should include how much each partner is to contribute and how partner’s capital will be determined during the operation of the partnership agreement. How decisions will be made, profits shared, disputes resolved, should be clearly stated in the contractual agreement. How future partners would be added, how partners can be bought out and how the partnership should dissolved if need be must all be clearly stated in the agreement. The partners in any given partnership have a certain fiduciary responsibility to each other. Each partner must give account to their co-partners of any yet undeclared profit made by virtue of their position as partners (Ong, 2008) Trust A trust is comprised of three parties involving the Settlor who creates the trust by drawing up the deed, the trustee, who manages the property, and the beneficiaries, who receives benefits of capital and income from the trust (See the Trust Act of 1973). A trust may be either discretional, unit or a combination of both. In a discretionary trust, the trustee has the freedom to make decision regarding the distribution of income and capital to the beneficiaries. In a unit trust, each unit is entitled to a particular level of distribution and the trustee is required to distribute capital and income by reference to the number of units held by a beneficiary. In both cases, however, the beneficiaries hold equitable ownership of of the asset held in trust by the trustee, see Baker v Archer-Shee (1927) AC 844, and Charles v commissioner of taxation (1927) AC 844 at 858-859. The trustee in this regard, has no right to enjoy in any form or used the asset held in trust for purposes other than the beneficiary’s interest; see The Congregation of the Religious Sister of Charity of Australia v The Attorney General (2011) QSC 100. And unlike in a partnership, the beneficiaries do not owe each other any fiduciary responsibility, instead the beneficiaries are owed fiduciary responsibilities by the trustee, see Smith v Anderson (1888) 15 Ch D 274-275 (per James LJ) and Keech v Sandford (1726) Sel Cas T King 61 (25 ER 223). Company A company is regarded as a unique entity, separate from the shareholders, having its own life, and cannot be dissolved when there is a change of ownership. A company may be either proprietary, or public (see Corporation Act 2001). A proprietary or public company may be either a limited liability company or an unlimited liability company, the term limited liability indicating that the each shareholder’s (owner) liability regarding the debts and obligation of the company is limited to the value of share owned in the company. The number of shareholders in a proprietary company may not be more that 50, and must have a minimum of one director and one shareholder resident in Australia (see Corporation Act 2001). A public company, however, must have at least 50 shareholders, with a minimum of three directors, two of whom must be resident in Australia (see Corporation Act, 2001). The difference between a partnership and a company is evident in the level of regulation, taxation, compliance and a whole lot of legal responsibilities. While the management structure of a partnership is simple, dependent mainly on the skills of the partners, a company has a management structure far more complex and onerous. The structural Relationship of the Trust with Partnership and Company The trust as pointed out before here may be either discretionary, unit or a combination of both, however for the purpose of this analysis, the discretionary trust, known in mainly as the Discretionary Family Trust shall be our primary focus, for the reason that it is one of the most common small business structures in Australia. Discretionary family trust are established mainly to benefit members of family, as a way of sharing tax burden, and is useful for families who hold capital gains or income generating assets. Apart from the fact that income may be distributed to members of family with low tax rates, the Discretionary Family Trust, provides family a level of protections from bankruptcy and insolvency. One of the most striking advantages of this structure is that it is simple to operate, and is low cost. The Trust as a Business Vehicle A business can be established and run through a sole proprietorship, partnership, company or through a trust, but the trust offers a range of advantages; a.) Cost effective business which is simple to handle b.) Some level of protections from insolvency and bankruptcy c.) Well spread, less burdensome family tax A trust is set up with a Settlor, an Appointor, a trustee and the Beneficiaries who benefit from the trust. The Settlor is most preferably an Attorney, the Appointor, who is vested with powers to dismiss or appoint the trustee should very definitely be the owner of the trust or his (her) spouse, and of course the beneficiaries are family members, companies (owned, perhaps, by members of family or set up on behalf members of family), partnerships. The trust then becomes, a unique entity, having its own life, and unlike a company, it costs nothing, and is simple to manage. In sharp contrast to a partnership, the trustee and likewise the beneficiaries are indemnified out of the assets of the trust. The beneficiaries hold no personal liability for the debts and obligations arising from business activities of the trust. However, the trustees has a fiduciary responsibility to the beneficiaries, see Kennon v Spry (2008) HCA 56, and in situations where the Settlor also acts as the trustee there could be a conflict of interest as was ruled by the court in Kennon v Spry. The beneficiary has a beneficiary title relevant to the specific asset of the trust, the interest of such beneficiary is located where the specific asset is located (Ong, 2008), it is an obligation therefore on the part of the trustee to execute every fiduciary responsibility owed the beneficiary regarding the assets of the trust. A trust, like a company, being an independent entity, offers a level of stability and can outlive the beneficiaries and the trustees, as it is not dissolved on the demises of the beneficiaries and trustees. Since the trust assets and funds neither form part of the estate of the beneficiary, nor trustee, they cannot be included as such in their will. In Australia, a trust can operate up to 80 years after the death of the trustee and beneficiaries. However, the choice of business structure is in many ways dependent on the set priority of the investor. If assets protection is uppermost in the investor’s priority, then a trust or a company would most probably be an option for consideration. Where the cost is the primary consideration, a partnership or a trust would be fitting options. However, when the priority is both a low start up cost and asset protection, a trust would certainly be an option worth considering. Nevertheless, just like a company, a trust requires a certain level of administration that involves other parties. In setting up a trust, a lawyer, who may assume the position of a Settlor, a trustee, and beneficiaries would all be active participants in the trust. It is important therefore, that proper great caution be taken in choosing who part of a trust becomes. Bibliography Denis S. K. Ong. “Trust Law in Australia”. 2008. Barnes & Nobles Commonwealth Government. “Corporation Act”. 2001. Commonwealth Government. Supreme Court of Queensland. “The Congregation of the Religious Sisters of Charity of Australia & Ors v The Attorney-General”. 2011. Supreme Court of Queensland. Supreme Court of Western Australia. “Larkman v Public Trustee. 1998. Supreme Court of Western Australia. Read More