Re Hoang Minh Le; ex parte The Public Trustee
[2012] WASC 31
•2 FEBRUARY 2012
RE HOANG MINH LE; EX PARTE THE PUBLIC TRUSTEE [2012] WASC 31
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2012] WASC 31 | |
| 02/02/2012 | |||
| Case No: | CIV:1093/2012 | 1 FEBRUARY 2012 | |
| Coram: | BEECH J | 1/02/12 | |
| 6 | Judgment Part: | 1 of 1 | |
| Result: | Order varying terms of trust made | ||
| B | |||
| PDF Version |
| Parties: | THE PUBLIC TRUSTEE |
Catchwords: | Trusts and trustees Court ordered trust of settlement sum Whether terms of trust should be varied to permit substantial majority of trust monies to be transferred to a superannuation fund for a policy in favour of the beneficiary |
Legislation: | Trustees Act 1962 (WA), s 89, s 90, s 92 |
Case References: | Perpetual Trustee Company Ltd v Cheyne [2011] WASC 225 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
and
Sections 89, 90 and 92 of the Trustees Act 1962
and
Section 16(1)(d) of the Supreme Court Act 1935
and
The trust established (by order of his Honour Judge Bowden on 14 October 2011 in the District Court of Western Australia) for the benefit of Hoang Minh Le
THE PUBLIC TRUSTEE
Applicant
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Catchwords:
Trusts and trustees - Court ordered trust of settlement sum - Whether terms of trust should be varied to permit substantial majority of trust monies to be transferred to a superannuation fund for a policy in favour of the beneficiary
Legislation:
Trustees Act 1962 (WA), s 89, s 90, s 92
Result:
Order varying terms of trust made
Category: B
Representation:
Counsel:
Applicant : Mr B W Ashdown
Solicitors:
Applicant : Public Trustee (WA)
Case(s) referred to in judgment(s):
Perpetual Trustee Company Ltd v Cheyne [2011] WASC 225
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- BEECH J:
Introduction
1 The applicant (the Public Trustee) is the trustee of funds derived from settlement of a personal injuries action. The Public Trustee wants the court to authorise it to invest the substantial bulk of the trust funds in a superannuation fund. That is because of the favourable tax environment applicable to superannuation funds. The superannuation and taxation legislation specifically extends those benefits to personal injury settlement funds where the injured person is permanently unable to work.
2 The tax legislation requires settlement funds to be contributed to a superannuation fund within 90 days of receipt of the compensation payment in order that the taxation benefits apply. That 90-day period expires on 16 February 2012. Consequently, this application was brought on for hearing urgently.
3 At the hearing I made the orders sought and said I would give my reasons later. These are my reasons.
Background
4 Mr Hoang Minh Le was seriously injured in a car accident when he was aged 2. Late last year, the District Court approved a compromise of his personal injuries claim for that accident. The claim was brought by his mother as his next friend.
5 The District Court approved the compromise of his action in a sum in excess of $4.7 million. The court ordered that, after payment of certain liabilities, the compromise sum was paid to the Public Trustee 'for investment on trust for the plaintiff, which investment is not to be restricted to the common fund'. I will refer to the trust created by the order as the Court Compensation Trust.
6 On 18 November 2011, the Public Trustee received a sum of just under $4.6 million pursuant to that court order.
7 The Public Trustee wishes to apply a significant proportion of the capital of the Court Compensation Trust as a contribution to superannuation. That is to take advantage of the substantial tax benefits that such a contribution offers. The Public Trustee presently intends to apply the sum of $3.5 million as a superannuation contribution. However, in order to provide future flexibility, the Public Trustee seeks an order permitting up to $4 million to be contributed.
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8 The funds would be contributed to a superannuation fund of which Mr Le would be a member. The Public Trustee has obtained orders from the State Administrative Tribunal investing the Public Trustee with powers as limited administrator of Mr Le to act in connection with any superannuation investment. That will enable the Public Trustee to exercise all of Mr Le's rights and powers in relation to a superannuation fund.
The application
9 The Public Trustee accepted that the terms of the Court Compensation Trust, read with the Trustees Act 1962 (WA), do not presently empower it to apply $4 million of the trust fund as a contribution to a superannuation fund. The Public Trustee sought an order under s 89 and s 90 of the Trustees Act varying the terms of the Trust to enable that step to be taken. It also sought a direction under s 92 approving the taking of that step.
The need for a variation
10 In Perpetual Trustee Company Ltd v Cheyne [2011] WASC 225, Edelman J held that the trust in that case empowered the trustee to transfer trust funds to a superannuation fund. In that case, the terms of the trust were different from the present case. The terms of the trust in Cheyne empowered the trustee to
apply from time to time the whole or any part of the income from the investment monies with recourse if considered necessary to the capital thereof for the maintenance, welfare and advancement or otherwise for the benefit of the Plaintiff [8].
11 The power to apply capital if considered necessary for the maintenance, advancement or otherwise for the benefit of the beneficiary is not expressed in the terms of the trust in this case.
12 Section 59 of the Trustees Act empowers the Public Trustee to apply capital for the maintenance, education or advancement or benefit of a beneficiary. However, that power is limited to the extent of one-half of the interest of the beneficiary: s 59(a). The amount the Public Trustee proposes to transfer to a superannuation fund in this case exceeds one-half of the capital of the Court Compensation Trust.
13 Section 17 of the Trustees Act permits a trustee to invest trust funds in any form of investment. In Cheyne, Edelman J held that s 17 does not empower payment of trust funds into a superannuation fund for the benefit
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- of the beneficiary. That was because the trustee who pays the money into the superannuation fund does not itself obtain any benefit; the benefits of the superannuation fund are rights held by the beneficiary. That, Edelman J held [52] - [56], means that payment into a superannuation fund is not an 'investment' by the trustee.
14 In this case, the Public Trustee accepted the correctness of that conclusion. I proceed on that basis.
15 Thus, in this case, the Public Trustee cannot transfer $4 million into a superannuation fund under the existing terms of the Court Compensation Trust.
16 For the reasons that follow, I exercised my powers under s 89, s 90 and s 92 of the Trustees Act to authorise the Public Trustee to take that step.
Transfer to a superannuation fund is for the benefit of the beneficiary
17 I am satisfied by the affidavits filed by the Public Trustee that transfer of a substantial portion of the trust fund into superannuation is for the benefit of the beneficiary. A superannuation fund enjoys a much lower tax rate for income and capital gains. When and if the superannuation fund is converted to an allocated pension, no income tax applies. The superannuation and taxation legislation has specific provisions relating to personal injury compensation payments. The effect of those provisions is that in cases where a person is permanently incapacitated, there is no cap on the contributions to superannuation that may be made, and monies in the superannuation fund are not preserved. Consequently, there is no need to wait to attain a minimum age before withdrawing monies from the superannuation fund. The tax position was summarised by Edelman J in Cheyne [43].
18 The models prepared by Mr Taylor, an experienced officer at the Public Trustee, conclude that the advantageous taxation environment of a superannuation fund would produce many millions of dollars of benefit for the Court Compensation Trust over its expected life.
19 In assessing whether the transfer of trust funds into superannuation is for the benefit of the beneficiary, I take into account the change in the lines of accountability and supervision of those in charge of the beneficiary's assets. The Public Trustee is subject to the supervision of this court. When funds are transferred into the superannuation fund for the benefit of the beneficiary, the Public Trustee will exercise the
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- beneficiary's rights to enforce due administration of the superannuation fund. The consequences of that, and the various forms of accountability, are explained by Edelman J in Cheyne [46].
20 I am satisfied that the transaction proposed by the Public Trustee, namely the placing of up to $4 million in a superannuation fund of which Mr Le is or becomes a member, is, in the terms of s 89 of the Trustees Act, expedient in the management of the trust property vested in the Public Trustee, and in the best interests of Mr Le. Further, that transaction cannot be effected by reason of the absence of power in the Public Trustee.
21 Consequently, I made orders under s 89 of the Trustees Act varying the Court Compensation Trust to confer the necessary power and under s 92, approving what is proposed.
General observations
22 I conclude with some general observations aimed at reducing the need for similar applications in other cases.
23 The District Court often makes orders in a personal injuries action constituting a trust for the benefit of a person under a disability in respect of proceeds of settlement or judgment. Given the statutory regime giving significant tax benefits to superannuation funds, including contributions from personal injuries settlements, trustees may often wish to transfer trust funds to a superannuation fund. In making its orders constituting the trust, the court may give attention to whether the terms of the order should empower the trustee to transfer trust funds into superannuation. That may avoid the need for any further court application to empower such a transfer. In framing the proper term of original orders in the District Court, counsel should give consideration to these matters.
24 In its original order constituting the trust, the District Court could direct that the trustee have power to apply the income and capital of the trust fund for the maintenance, welfare, advancement or otherwise for the benefit of the person under the disability. The effect of the decision in Cheyne is that that an order to that effect empowers the payment of some or all of the trust funds into superannuation so long as that course is 'for the advancement or otherwise for the benefit of the beneficiary'.
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