Case Note: Verhelst
Lately we've been dealing with the People Power involved in trusts and their various responsibilities.
Last time, we looked at the appointor. We determined that, like the trustee, the appointor:
(a) is powerful and must act in accordance with the trust deed; and
(b) must exercise its powers in good faith for the benefit of the trust.
These concepts were present in Verhelst v Tondeleir Pty Ltd for the Verhelst Discretionary Trust & Anor  QSC 68. The Court was asked to decide:
(a) whether the appointor had acted within its powers; and
(b) whether the appointor had acted in good faith.
Only the facts relevant to these issues have been outlined below.
Important parties to the case
There are several important people on these facts:
- Monique Verhelst, Tondeleir's mother and sole director of VPL (Verhelst);
- Mark Tondeleir, appointor and Verhelst's adult son (Tondeleir);
- Verhelst Pty Ltd, allegedly the old trustee of the Verhelst Discretionary Trust (VPL); and
- Tondeleir Pty Ltd, allegedly the new trustee of the Verhelst Discretionary Trust (TPL).
Verhelst Discretionary Trust (Trust) was established in 1998 with VPL as trustee and Tondeleir as appointor. The trust deed empowered the appointor to:
(a) remove and appoint the trustee; and
(b) remove beneficiaries by notice in writing.
The primary beneficiaries were Verhelst and Tondelier's three children.
Although Verhelst was the sole director of VPL, Tondeleir undertook most of the business of the trust, which engaged in acquiring, renovating and leasing residential properties.
In 2001, the Trust purchased a unit in which Verhelst lived rent-free and with all rates, electricity, maintenance and upkeep payments being paid by the Trust. Sometime later, Tondeleir asked Verhelst to move out of the unit, because he had had to top up the Trust's loans from his personal finances. Verhelst was receiving Australian and Belgian pensions and only incurred her personal expenses. Verhelst did not move out of the unit.
In May 2014, another unit owned by the Trust was sold. The purchasers were also interested in purchasing the unit in which Verhelst lived, and Tondeleir proposed the sell the unit to reduce the debt of the trust. Verhelst refused.
At that time, Verhelst and Tondeleir's relationship deteriorated a little. Tondeleir believed that it was unfair that Verhelst was receiving all the benefits of the Trust, and that no other beneficiaries received any benefit.
In July 2014 Tondelier told Verhelst that she was required to vacate the unit, and offered her another property in which to live rent-free and with free power. Again, Verhelst refused.
Later in July 2014, Tondeleir sought legal advice on exercising his powers as appointor, and executed documents to:
(a) establish TPL as a company;
(b) remove VPL as trustee of the Trust;
(c) appoint TPL as trustee of the Trust; and
(d) remove Verhelst as a beneficiary of the Trust.
The exact dates of these was in dispute (see below).
The Court was asked to determine whether:
(a) removal of VPL as trustee was valid;
(b) removal of Verhelst as beneficiary was valid; and
(c) whether the removal of VPL and appointment of TPL as trustee was in good faith. If not, whether VPL should be substituted for TPL as trustee of the Trust.
Was the removal of VPL as trustee valid?
The documents that Tondeleir executed to exercise his powers as appointor (documents (b), (c) and (d) listed above (Documents)) were allegedly signed on 29 July 2014, but were dated at 28 July 2014. Verhelst contended that, since TPL was not incorporated until 29 July 2014, the appointment of TPL as trustee on 28 July 2014 was invalid.
It was clear that Tondeleir, as appointor, had express power in the trust deed to remove the trustee and appoint the new trustee.
Tondeleir pointed to a statutory declaration dated 5 September 2014 stating that the documents had been signed on 29 July 2014 but mistakenly dated 28 July 2014, and a written affidavit stating the same, as evidence that the Documents had been executed on 29 July 2014. He also gave oral evidence (and was cross-examined) that he signed the document incorporating TPL first and then the Documents afterwards. The Court accepted this evidence.
(a) the Documents were signed on 29 July 2014, when TPL was in existence; and
(b) Tondeleir as appointor had the power to remove and appoint the trustee of the Trust,
Tondeleir's removal of VPL as trustee was valid.
Was the removal of Verhelst as beneficiary valid?
Similarly, the removal of Verhelst as a beneficiary of the Trust was held to be valid because the trust deed authorises the appointor to remove beneficiaries by notice in writing.
Should the Court substitute VPL for TPL as trustee? Did Tondeleir act in good faith?
Remember, it is essential that the appointor act in good faith in the interests of the beneficiaries. In this case the Court confirmed this, stating that the appointor must exercise its powers: "...with "good faith and sincerity" and with a view to the real purpose and object of the power..."
The Court said that if it can be shown that Tondeleir did not act in good faith, and indended to act through TPL "in antagonism to the trust" (which is one of the reasons a court may remove a trustee), then it will be appropriate for the Court to remove TPL as trustee of the Trust.
However, the Court was not satisfied that this could be shown. It said that the evidence showed that Tondeleir:
(a) believed that Verhelst used her control of VPL to unfairly benefit only herself, and not the other beneficiaries; and
(b) was concerned that Verhelst was causing VPL to act contrary to its trustee duties.
Therefore the Court found that Tondeleir had acted in good faith, and that it was not appropriate to substitute VPL for TPL as trustee of the Trust.
This case demonstrates the importance of the appointor acting:
(a) in accordance with the terms of the trust deed; and
(b) in good faith for the benefit of the trust.
The appointor in this matter had clearly acted within the powers conferred on him my the trust deed, and the evidence demonstrated his concerns about the existing operation of the trust and thus his reasons for changing the trustee for the benefit of the trust.
Allawdocs trust deeds create the role of appointor with clearly defined powers to remove and appoint the trustee. Allawdocs is also proudly supported by GV Lawyers, who can provide advice to appointors with questions about the exercise of their powers. GV Lawyers can be contacted on 1300 729 914 or via its website.
Allawdocs provides fast, quality online legal documents for accountants, financial planners, lawyers, and business owners around Australia, including company formations, trust deeds, and SMSF documents. With the legal support of GV Lawyers, clients can receive free legal advice relating to their Allawdocs document.
Blog provided by GV Lawyers.