Trust Bill reforms charitable trusts

Background

Queensland’s existing Trusts Act 1973 is more than half a century old and has not been comprehensively amended since its introduction. A 200-page Bill to replace it is currently before Parliament.

The Trusts Bill was developed based on the recommendations of the Queensland Law Reform Commission, which conducted a broad-ranging review of the Trusts Act 1973 in 2013.

The law of trusts in Queensland is found mainly in the case (common) law rather than in the Trusts Act 1973 (Qld) itself. The Act provides some useful powers for trustees not found in the common law or sometimes missing in the trust deed, modifies some aspects of the common law of trusts that have not kept pace with changing social attitudes and commercial developments and ensures that the Court has appropriately broad powers to supervise the administration of trusts.

Other Australian jurisdictions, as well as New Zealand, England, and the Canadian provinces, all adopt this approach. Numerous English Trustee Acts of the mid- to-late 1800s formed the basis of all these acts.

The law of charities is firmly rooted in the case or common law, and the Queensland Trusts Act merely makes some statutory alterations to this foundation. This includes how a charity is defined, the permissible number of trustees, the consequences of having non-charitable purposes as part of a charitable trust and redirecting the purpose of a charitable trust if its purposes become impossible, frustrated or inappropriate.

But wait, there is more! The Commonwealth also has 2 main pieces of legislation that need to be considered if the charity is seeking access to Commonwealth concessions such as income tax exemption and gift deductibility; namely:

• the Australian Charities and Not-for-profits Commission Act 2012 (Cth) (ACNC Act); and
• the Charities Act 2013 (Cth) (Charities Act). These provide overlapping provisions, such as a slightly different definition of charity and governance standards.

Some of the proposed changes contained in the Queensland Bill that relate specifically to charities are:

Replacement of natural person trustees

Many Queensland rural towns have progress halls, and these properties are often held by local identities in trust for community purposes. As the hall’s use falls away, the trustees are not called upon to do much, and they can all pass away without anyone realising that it affects the hall’s trust. Often, a visit to the Supreme Court is necessary to appoint new trustees, causing delay and expense.

The Act allows the personal representative of the last continuing trustee who is dead to appoint a replacement trustee or trustees where there is no appointor under the trust instrument, or no appointor who is willing and able to act, to appoint a new trustee.

If the last charitable trustee becomes legally disabled, troubles can also occur.

The Bill enables the administrator or attorney for the last continuing trustee who has impaired capacity for administering the trust, who is authorised to exercise power for all financial matters for the trustee, to exercise the power of appointment to appoint a new trustee, including appointing themselves. This power only arises where there is no appointor under the trust instrument, or no appointor able and willing to exercise the power of appointment to appoint a new trustee, and any other mechanism under the trust instrument that enables a new trustee to be appointed has not been exercised within a reasonable period after the last continuing trustee with impaired capacity became the last continuing trustee, or became a person with impaired capacity.

Trustee Duties

While common law has extensive duties for trustees and charity trustees, the Bill now sets out duties that were not included in the previous Act. Charities registered with the ACNC will also have the governance standards set out in the ACNC Act.

The trustee has a duty to exercise the care, diligence, and skill that a prudent person having that special knowledge or experience would exercise in managing the affairs of other persons when administering a trust.

The duties include:

• The duty to act honestly and in good faith, and for charities, to further the purposes of the trust,
• The duty to keep accounts and other records, and
• The duty to make accounts available for inspection and to provide copies.

Trustees engaged in a profession, business, or employment that manages the affairs of other persons and non-professional trustees who hold themselves out as having special knowledge or experience in administering trusts or administering trusts of a particular type are held to a higher standard commensurate with their profession or professed skills.

Review of Remuneration of Trustees

The Bill gives the Court the power to review and reduce excessive amounts for commission and professional charges charged by a trustee on its own initiative or an application by an interested person.

It is intended to overcome the situation in which the trust instrument or an Act has authorised remuneration at a level that, in the particular circumstances of the trust, turns out to be excessive and to allow the Court to protect the interests of the general community and the charitable beneficiaries.

This does not apply to a licensed trustee company or the public trustee as their fees and charges are supervised by other legislation.

Changing the purposes of a charitable trust

Charitable trusts cannot unilaterally change their purposes at common law. A change of purposes requires the approval of the Supreme Court, which can be a lengthy and expensive procedure known as cy-près (as near as possible” to the original intent of the instrument).

It is not available on the whim of the trustees but in situations where achieving charitable purposes becomes impossible, impracticable, or illegal to enforce under the charitable trusts’ original terms.

Charitable Trustees must by law pursue cy-près if the purposes cannot be effectively used.

The Supreme Court can now consider wider matters than just the ‘spirit of the trust’, including the social and economic conditions prevailing at the time of the proposed change to the trust’s purposes.

A further alteration to streamline the cy-près Bill will enable the Attorney-General to approve a scheme to allow trust property to be applied cy-près where:

• a trustee makes an application to the Attorney-General;
• the Court has not previously changed the purposes of the trust, and
• the value of the trust property does not exceed the District Court’s monetary limit (at present $750,000).

Ancillary Funds in Sync with the Commonwealth Laws

The Bill will also allow Queensland to be aligned with Western Australia and permit ancillary funds to make grants to a broader spectrum of organisations.

An ancillary fund is a trust that is a type of deductible gift recipient (DGR) under item 2 of the table in sections 30-15 of the Income Tax Assessment Act 1997 (Cth) (ITAA97). Item 2 specifies that an ancillary fund can only provide money, property or benefits to Item 1 DGRs.

The Charities Act automatically accepts that trusts that make grants to government entities that would be charitable if they were not government entities are charitable for Commonwealth purposes. However, under various State legislation, philanthropic funds need to take action to make grants to government entities (in the form of a declaration or selecting specific wording when drafting the trust deed).

Trustees currently make distributions not authorised under State laws (other than WA and soon Queensland) in mistaken reliance on the Charities Act and can also make distributions that threaten the trust’s charitable status under Commonwealth law in mistaken reliance on the State laws.

Subsequent changes to the Commonwealth law no longer require trustees to make a declaration to ‘opt-in’ to make distributions in favour of the ‘prescribed trusts’ with the legislation providing the necessary power for the trustees to deem those as ‘prescribed trusts automatically’.

The changes in the Bill are modelled on recent amendments to the Charitable Trusts Act 2022 (WA). As the nature of this change is curative, it will apply to all exercises of this power that were made without the relevant declaration to ‘opt-in’ during the period (which has retrospective effect). This will be of comfort to some ancillary fund trustees.