Tuesday, December 4, 2018

If 6 was 9 – Trust Naming Conventions – Part IX **


Continuing on from the last post and the type of trust deeds that can be created, this week’s post summarises another five types of trusts:

Special Disability Trust – this type of trust is regulated by government legislation and allows relatives of a family member who has a disability to establish a trust that has concessional income tax treatment, and also allows for any family home owned by the trust to still gain access to the main residence capital gains tax exemption. There are a number of particular rules in relation to how this form of trust must be established and operated.

Employee Benefit Trust – this type of trust is often set up by business owners as a way to provide discretionary bonus entitlements to key staff. The structure was very popular for a number of years, however active Tax Office compliance has meant that the range of circumstances where this type of structure will be useful is now relatively limited.

Business Succession Trust – from a business succession perspective, it is often important to help manage the exit of an ultimate owner by obtaining insurance cover for events such as death, trauma and total and permanent disablement. While there can be a number of complex issues that arise, one way to structure the ownership of the insurance policies is via a special purpose trust, often referred to as a 'business succession trust'.

Blind Trust – a blind trust is one where the trustee is the only party disclosed as being involved in the trust and the standard phrase 'as trustee for [name of trust]' is not disclosed. In a semi-blind trust, the existence of the arrangement is maintained on trust records. With completely blind trusts, there is no documentation in existence supporting the evidence of the trust and everything about the trust relationship is regulated verbally.

Sub Trust – particularly in relation to a discretionary trust that make distributions to beneficiaries, with those distributions remaining unpaid for extended periods, the trust instrument will often automatically create a 'sub trust' that permits the beneficiary to any time call for the payment of the unpaid distributions.

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

** For the trainspotters, ‘If 6 was 9’ is a song by Jimi Hendrix from 1969.



Tuesday, November 27, 2018

NSW implications for all changes of trustee



With thanks to the Television Education Network, today’s post considers the above mentioned topic in a vidcast.


As usual, an edited transcript of the presentation is below:

There is a specific provision of the New South Wales Duties Act which requires that, in order to qualify for the stamp duty exemption where a change of trustee is occurring, the new trustee needs to be excluded as a beneficiary of the trust.

This means the trust deed needs to contain an express provision excluding any new trustee from being a beneficiary.

Advisers practicing in New South Wales are usually acutely aware of that limitation being in most of their trust deeds and of the resulting need to look at who may have been a previous trustee to see whether any beneficiaries are excluded.

The issue comes up quite commonly because several of the popular online trust deed providers use trust deeds from Sydney law firms, meaning that even though the trust deed might be ordered online by an accountant in Western Australia or a lawyer in South Australia, if the deed provider is based in New South Wales, the deed they’re providing probably contains this exclusion without the adviser being aware of it.

There are two reasons we need to know whether the deed contains the exclusion.

Firstly, if we are changing the trustee and we appoint a new trustee who is a beneficiary of the trust, then that change of trustee may be invalid or it may trigger unintended tax or stamp duty consequences.

Secondly, we may have individuals who were previously a trustee of the trust and who at face value appear to be a beneficiaries, but who were actually excluded as a result of the clause.

For instance, if Mum and Dad were individual trustees but they subsequently retired and appointed a corporate trustee, even though they may be named as beneficiaries of the trust, the exclusion clause may have made them ineligible to receive income or capital distributions.

An exclusion like this can have an impact from a family law perspective and also from a tax perspective, if we have been purporting to make trust distributions to individuals thinking they were beneficiaries, not being aware of this exclusion hidden within the trust deed.

Tuesday, November 20, 2018

Maintaining trust records


With thanks to the Television Education Network, today’s post considers the above mentioned topic in a vidcast.

As usual, an edited transcript of the presentation is below:

It’s surprising how often we are provided with an original trust deed for a trust that’s been around for 10 or 15 years and are asked to give advice on the terms of the trust, only to have it turn out later that there were subsequent deeds of variation or resolutions which amended the terms of the trust, which everyone had lost or forgotten about.

As a practical tip, clients who are establishing a trust should have some form of trust register or trust folder in which they store copies of all of the trust deeds, trust variations, trust resolutions and any other documents which may impact on understanding what rights and responsibilities attach to that trust.

We also need to understand that beneficiaries can make unilateral decisions, such as deciding to renounce an interest as a beneficiary of a trust.

If an individual who is a beneficiary issues a disclaimer or a renunciation, which says that notwithstanding the terms of the trust deed they have chosen not to be a beneficiary of the trust anymore, that will impact on their standing from a family law perspective, bankruptcy perspective and a tax perspective.

Tuesday, November 13, 2018

Eight (days a week) – Trust Naming Conventions – Part VIII **


Continuing on from recent posts about the types of trust deeds that can be created, this week's post summarises another five types of trusts:

Constructive Trust – this is an equitable remedy resembling a trust imposed by a court to benefit a party that has been wrongfully deprived of its rights by a person obtaining or holding legal right to property which they should not possess due to unjust enrichment or interference.

Resulting Trust – this is the creation of an implied trust by operation of law, where property is transferred to someone who pays nothing for it, and then is implied to have held the property for benefit of the initial transferor.

Bare Trust – this is a trust in which the beneficiary has a right to both income and capital and may at any time call for both to be transferred to them personally. Bare trusts usually have little or no documentation and the trustee is obliged to follow the directions of the beneficiary immediately on them being given.

Absolutely Entitled Trust – when a beneficiary is absolutely entitled to trust property, they are able to call for the asset to be transferred to them by the trustee. Often, this type of trust arises when the original trust is designed to end on a beneficiary attaining a certain age and the age is reached.

Vested Trust – once a trust has passed any perpetuity period defined in the trust (or if it lasts longer than is permitted under government legislation), then it will end or 'vest'. What happens in relation to a vested trust depends on a range of issues and it is always important to review the terms of the trust deed as a starting point.

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

** For the trainspotters, ‘Eight Days a Week’ is a song by the Beatles from 1964.


Tuesday, November 6, 2018

Seven Seconds – Trust Naming Conventions – Part VII **


Continuing on from the last post about the types of trust deeds that can be created, this week's post summarises another five types of trusts:

Capital Protected Trust – this type of trust is designed to protect the capital of the trust fund and to preserve the trust assets for the benefit of later generations. This is normally achieved by ensuring the beneficiaries are only entitled to utilise the income of the trust.

Converting Trust – a converting trust traditionally will be a standard discretionary trust that converts into some other form of trust following a triggering event. Often, the trust will convert on the death of (say) the primary beneficiaries so that the trust will become a unit trust with discrete components allocated to each of the children of the initial primary beneficiaries.

Service Trust – a service trust is commonly used to supply the use of equipment, staff, premises and administration services to a related business. Traditionally, this type of trust has been used by professionals who were required to conduct business personally as a tax planning and asset protection strategy.

Borrowing Trust – this is a trust which is established solely for the purpose of borrowing money for the benefit an active related business entity.

Superannuation Instalment Trust
­– the superannuation legislation allows self-managed superannuation funds to borrow money, subject to satisfying strict requirements. Most of those requirements are in relation to the type of trust that must be established to facilitate the borrowing.

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

** For the trainspotters, ‘Seven Seconds’ is a song by Neneh Cherry from 1994.

Tuesday, October 30, 2018

Trust me I’m six – Trust Naming Conventions – Part VI **




Continuing on from recent posts about the types of trust deeds that can be created, this week's post summarises another five types of trusts:

Life Insurance Trust – this trust allows the owner of a life insurance policy to avoid being liable for tax on the proceeds of life insurance policies post death by setting up a trust to specifically own life insurance policies. All the rights of the life insured are assigned to the trustee, and on death, no tax should be payable on the proceeds of the life insurance policy.

Grantor Retained Income Trust – an irrevocable trust established in a written agreement whereby the grantor transfers specific assets to the trust, however retains the income from or the use of the assets for a stipulated period of time.

Grantor Retained Annuity Trust – a trust where the grantor gifts property to a trust and retains the right to a fixed annual payment for a certain period of time.

Negative Gearing Hybrid Trust
– this type of trust is based on the hybrid trust (profiled in an earlier post in this series). It incorporates aspects of a traditional unit trust that entitles unitholders to a fixed entitlement to income of the trust and also the aspect of the discretionary trust that allows the trustee to have a degree of control in the distribution of the capital of the trust to potential beneficiaries. The structure allows for both negative gearing tax deductions and asset protection for any capital gains derived.

Managed Investment Trust – these trusts are essentially unit trusts that carry on passive investment activities on a wide scale. When structured correctly, they can receive a concessional tax rate compared to investments in companies and other types of trusts.

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

** For the trainspotters, ‘Touch Me I’m Sick’ is a song by Mudhoney from 1996.


Tuesday, October 23, 2018

Who is a beneficiary?


With thanks to the Television Education Network, today’s post considers the above mentioned topic in a vidcast.


As usual, an edited transcript of the presentation is below:

When we’re dealing with a discretionary trust, one of the first things we need to do is to identify who the beneficiaries are.

Is our client (or their spouse) in fact a beneficiary of the trust that we’re dealing with?

There are some common tricks and common issues that we should be keeping an eye out for, including ensuring we have identified all variations to the deed since establishment.

We also need to be aware of a case by the name of Yazbek, which outlines the approach that the courts take when they are asked to consider who the beneficiaries of a trust are.

Yazbek is significant because the court confirmed that a person who is eligible under a trust deed to receive income or capital from a trust is a beneficiary, notwithstanding that they may not have actually received anything from the trust at that point in time.

The Yazbek decision was handed down in the context of an assessment which had been issued to an individual beneficiary.

The ATO normally has a two-year period after that assessment was issued in which to issue an amended assessment (where they have identified some additional tax they believe should have been included in the taxpayer’s return).

However that standard two-year window is extended to four years where the individual involved is the beneficiary of a trust.

In Yazbek, ATO was trying to issue an amended assessment three years after the original assessment had been issued. So it was outside the two-year window, but within the four-year window.

The taxpayer in Yazbek hadn't received any distributions from the discretionary trust that the ATO contended he was a beneficiary of.

This was a discretionary trust which was controlled by other family members.

He was included in a wide class of discretionary beneficiaries, but had not actually received anything.

His contention was that in order to be a beneficiary of a trust, he needed to have actually received something from it.

Now the court was quite quick to shut that argument down and said that even if a person has not received any income or capital from the trust for the entire period it has existed, if they are within a class of persons who are eligible to receive income or capital at the trustee’s discretion, they are still a beneficiary of the trust.