Tuesday, September 18, 2018

Trust (Waltz) #2 – Trust Naming Conventions – Part II **


As mentioned in the last post, there are a myriad of approaches for creating any form of trust.

The first five profiled in this series are summarised below:

2nd Generation Family Trust (or a 'GST' – generation skipping trust) – this is an estate planning technique whereby assets are placed in trust for the benefit of grandchildren and later generations, rather than passing to the benefit of living children . From an asset protection viewpoint, the net unallocated assets in this type of trust should be outside the scope of a challenge to a deceased estate in states and territories other than NSW.

Lineal descendant, bloodline or capital reserved Trust – the deed establishing this type of trust typically limits the capital of the trust for the ultimate benefit of the specified beneficiaries (such as lineal descendants) but allows income distributions to a wider class of discretionary beneficiaries (such as spouses).

Estate Proceeds Trust – this is a trust established following the death of a parent of a minor child structured to qualify for excepted trust income tax concessions. Where there are two or more children to benefit from the estate proceeds income tax concessions, either a separate trust deed can be established for each child or a single deed is established benefitting all children.

Child Maintenance Trust – this is a trust established as part of a family law settlement which qualifies for the excepted trust income concessions. The main purpose is to fund all or part of the child support obligations associated with the upbringing of children. These obligations would otherwise be met personally in after tax dollars by the obligated parent.

Discretionary Trust – this is the most common trust, often referred to as a family trust. The trustee has a wide discretion to determine which of the beneficiaries are to receive the capital and income of the trust and how much each beneficiary is to receive.

Each of the above trusts is explored in View’s book – 40 Forms of Trusts – Workbook.

** For the trainspotters, ‘Waltz #2’ is a song by Elliot Smith from 1998

Tuesday, September 11, 2018

Don’t you trust me baby? – Trust Naming Conventions – Part I **


At least in theory, the concept of a trust is relatively simple and involves one party (the trustee) holding assets for the benefit of others (the beneficiaries).

Trusts in one form or another have existed for hundreds of years in the English legal system and the basic components of a trust have essentially remained unchanged throughout that period.

A succinct overview of a trust relationship is set out here

Given there are only a few core elements which must be satisfied to have a valid trust relationship, overtime advisers and clients alike have largely only been limited by their imagination in terms of the way in which they craft any particular trust deed.

In future posts, brief summaries will be given about a number of the various approaches to creating trusts.

Each of the above trusts is explored in View’s book – 40 Forms of Trusts – Workbook.

** For the trainspotters, ‘Don’t you love me baby?’ is a song by the Human League from 1981



Tuesday, September 4, 2018

‘Where’s the proof man?’ Powers of Attorney and Conflicts of Law **


Continuing the theme over recent weeks of conflicts of law between various jurisdictions, the way in which the powers of attorney provisions operate in each Australian state are very relevant.

Effectively, while each state has its own legislation (and completely unique forms) for powers of attorney, there is also legislation that is designed to ensure that each state will acknowledge each other state’s documentation.

While this theoretical position is comforting, practically the situation is anything but satisfactory.

For example, the enduring power of attorney document in New South Wales is less than five pages. The equivalent document in Queensland runs to around 20 pages.

For third parties (including banks), who are used to (in New South Wales) seeing a very short document, they will often be quite unsettled to be presented with the much longer Queensland version.

In a practical sense, we quite often therefore arrange for enduring powers of attorney to be prepared in each state where the client has substantive investments, particularly if they own real property in more than one jurisdiction.

A more detailed explanation of how to craft multiple, complementary, powers if attorney is explored in a previous post.

** For the trainspotters, ‘Where’s the proof man?’ is a line from Lou Reed’s song from 1989, ‘Dirty Boulevard’

Tuesday, August 28, 2018

Remember the days of the ‘old (school) law’ **

View blog Remember the days of the ‘old (school) law’ ** by Matthew Burgess
Following on from last week’s post concerning conflicts of law, a similar area of potential difficulty relates to where governments replace existing legislation with a new act.

For example, in many states of Australia, the state governments have removed the previous 'Stamp Acts' and replaced them with 'Duties Acts' in recent years.

In very simple terms, the new Duties Acts effectively replace the previous Stamp Acts in their entirety as and from a particular date.

Practically however there can often be difficulties with this approach.

Recently, for example, we had a situation where a client became aware of an historical transaction that, while not subject to duty under the current Duties Act, would probably have been subject to stamp duty under the relevant Stamp Act.

It appeared that the only reason duty had not been paid was because the relevant documentation had not been lodged with the Stamps Office at the time.

Even though the relevant Stamp Act has been repealed for over ten years, it became necessary to review the provisions of that Stamp Act in detail as well as various court decisions that we had otherwise assumed had been consigned to the history books.

** For the trainspotters, ‘Remember the Days of the Old School Yard’ is a song by Cat Stevens from 1977



Tuesday, August 21, 2018

Shake it off and Conflict of Laws **

View blog Shake it off and Conflict of Laws ** by Matthew Burgess
The concept of ‘conflict of laws’ is one that comes up regularly in estate planning exercises and essentially relates to is determining which rules apply when there are two or more potential jurisdictions in relation to a certain set of circumstances.

Conflict of law issues can come up in a wide range of situations. One recent example related to a trust where the controllers of the trust wanted the laws of South Australia to apply, even though there were no substantial assets held in South Australia and the trustee company was registered in New South Wales.

The attraction of having the South Australian laws apply was that it would mean (potentially) that the trust could last forever due to the effective abolishment of the perpetuity rules in South Australia some years ago.

Broadly, so long as certain steps are followed, it is generally possible to have a trust with assets in any other Australian state regulated by South Australian law.

** For the trainspotters, ‘Shake it off’ by Taylor Swift is the number one hit on Google for songs about from 2014

Tuesday, August 14, 2018

Go your own way - The Rinehart Ruling – a key aspect **

View blog Go your own way - The Rinehart Ruling – a key aspect ** by Matthew Burgess
Following last week’s post in relation to the, suspected, Tax Office Ruling in relation to the Rinehart trust dispute matter there was some discussion about one key aspect of the reasoning.

In particular, the question of when a beneficiary becomes absolutely entitled to a particular capital asset as against the trustee is generally seen as critical.

The position appears to be that, where a trustee has a right of indemnity (and lien over) the relevant asset, it is not enough that the beneficiary has a ‘vested and indefeasible’ interest in the trust capital.

Instead, the beneficiary must have the right to force the trustee to transfer to them the asset, subject only to the payment of the trustee's expenses.

In order for this to be the case the better view appears to be that one of the following tests must be met, despite some suggestions to the contrary in the Tax Office’s Taxation Ruling 2004/D25 (TR 2004/D25), mentioned in last week’s post –

1. If the trust is over particular assets, then the trustee has a clear duty to transfer those assets to the beneficiary, without the trustee having any express or implied power of sale under the trust instrument.

2. Alternatively, if the trustee has a power of sale, the beneficiary must have demanded a particular asset be transferred to them and must tender sufficient funds to the trustee to satisfy the trustee’s right of indemnity.

3. Finally, absolute entitlement may be created by a trustee resolving to exercise a power under the trust deed (or at law) that a particular asset be immediately distributed to the beneficiary.

Importantly, and as flagged by the Tax Office in TR 2004/D25, a trustee’s right of indemnity of itself is irrelevant to the question of whether absolute entitlement exists. Rather it is a trustee's power of sale that will generally prevent a beneficiary being able to demonstrate absolute entitlement. However this point is unfortunately not clear in TR 2004/D25, despite the Ruling running to over 100 pages.

** For the trainspotters, ‘Go Your Own Way’ is another song by legendary band Fleetwood Mac from 1977, learn more here



Tuesday, August 7, 2018

Little lies? The Rinehart Private Ruling **

View blog Little lies? The Rinehart Private Ruling ** by Matthew Burgess


Obviously, there has been an enormous amount of interest in relation to the Rinehart trust dispute matter over an extended period of time.

Interestingly, the centrepiece of the dispute, at least from a tax perspective, does not always receive a significant amount of attention.

Given what has been disclosed publicly, there are many who believe that Ms Rinehart successfully obtained a private ruling from the Tax Office in relation to whether there were any capital gains tax (CGT) consequences of the trust, which is the focus of the dispute, vesting when Ms Rinehart’s youngest child turned 25.

While it cannot be certain, it appears that private ruling authorisation No. 1012254771092 relates to the Rinehart matter. 

The private ruling carefully considers whether CGT event E5 occurs on the vesting of a trust. CGT event E5 is said to occur when a beneficiary becomes ‘absolutely entitled' to a CGT asset of trust as against the trustee.

The ruling then goes onto explore in some detail the broad position that the Tax Office adopts in these areas based on Taxation Ruling 2004/D25 (TR 2004/D25). The Tax Office confirms that while TR 2004/D25 remains in draft, so long as it is not withdrawn, it does represent its view of the law.

Based on the analysis of TR 2004/D25, the ruling concludes that because no beneficiary was able to call for any one or more of the assets to be transferred to them, they were not entitled to any assets as against the trustee, and therefore, CGT event E5 did not occur on the vesting of the trust.

** For the trainspotters, ‘Little Lies’ is a song by legendary band Fleetwood Mac from 1987, learn more here