Friday, April 23, 2010

Typos and big legal bills

Given Monday is a public holiday, the Blog for next week is posted below.

Yesterday ended up being a very long day and unnecessarily expensive (both in terms of time consumed and bank, accounting and legal charges).

The day was also a particularly frustrating one due to the relatively underwhelming cause of all the hassle – a typo in an on-line created trust deed.

While the typo was not ours, it served as an extremely timely reminder of how critical it is to get even the simple things right.

For those that attended our Master Class on trusts a few years ago (our Master Class series is run once a year and is a half day program built entirely around a practical case study), you may remember one of the examples (based on a real life situation) where the vesting (or ending) date of a trust was accidentally noted as 18 years instead of the more standard 80 years.

Yesterday, the error (which had been generated by a client’s former accountant using an online trust provider) was simply the spelling of the name Stephen with a 'v' instead of the 'ph' in the schedule.

While the trust had borrowed money from the bank before, no one had ever picked up on this typo.

Yesterday was the settlement day for a relatively large transaction and mid morning a Sydney bank officer identified the typo and insisted that the bank security could not be perfected because of it until the error was remedied.

After much (often quite illogical) negotiation, the bank finally agreed to a deed of variation being implemented.

As is often the way in these situations however, the deed (which ran to less than two sentences of actual substantive terms) was redrafted three times to satisfy the precise requirements of the bank.
Furthermore, even having produced the deed, there was the threat of the bank refusing to settle unless it was stamped prior to settlement.

The irony here of course is that the particular form of document is not liable to stamp duty in Queensland and due to recent changes at the Stamps Office trying to discourage people to lodge these documents for duty assessment (I might touch on this in more detail next week), it was going to be impossible to achieve a same day stamping.

Finally, based on a written undertaking provided by us, the bank did agree to settle.

Until next week.

Matthew Burgess

Monday, April 19, 2010

Bamford - What exactly does it mean?

As many of you will be aware, we have updated our Intensive program over the last few weeks to include some initial comments on Bamford.

The Intensives have fully booked out and we are therefore also putting on some Wednesday Night Forums shortly which will focus exclusively on Bamford and the unpaid present entitlement ruling from the end of last year.

One very practical issue that has been raised regularly over the last few weeks has been in relation to trust deeds. In this week’s post, I thought I would list out the answers to some of the most frequently asked questions in this regard.

1. Are View Legal deeds 'Bamford compliant' – every trust deed provided by View Legal is Bamford compliant.

2. Are trust deeds from other providers Bamford compliant – this is an issue that will need to be assessed on a case by case basis. Certainly the older the deed, the less likely it is to be compliant. There are also a number of non tax specialist deed providers who have not traditionally focused on some of the critical issues raised in Bamford.

3. Should we be looking to do wholesale updates of all trust deeds in our client base (similar to the recent super deed updates completed) – subject to the exact approach the ATO adopts in the decision impact statement that is due to be released shortly, we believe there is likely to be some benefit in at least conducting a full review of all deeds.

4. Are there standard distribution minutes available – as many of you will be aware, we have always been conservative in our approach to distribution minutes and strongly recommend that every trustee should independently consider both the trust deed and the exact nature of distributions on a year on year basis (in other words, not use a 'standard' minute).

Certainly given the confirmation of the proportionate approach, the crafting of minutes so that (for example) infant beneficiaries get a set dollar amount and then the balance goes in certain percentages will rarely (if ever) be appropriate.

We are already working with a number of accounting practices to develop an approach that suits the risk profiles of their clients.

Until next week.

Matthew Burgess

Monday, April 12, 2010

Trust cloning is dead (or is it?)

On Friday, a lawyer in sole practice and I caught up in relation to reviewing a purported trust clone.

As many of you will know, we have been fortunate (particularly in recent years) to do an ever increasing amount of work with suburban and regional lawyers who effectively use us as their external resource in areas where they do not have the time, energy or skills to otherwise assist.

Here the initial query was for the lawyer directly and in particular whether he had prepared documents for a client that satisfied the relevant trust law rules about how a trust cloning must take place. As it turned out, everything was fine on this point and similarly from a tax perspective, the transaction had been validly implemented prior to the tax rule changes on October 31, 2008.

What had not been resolved however was the way in which the transfer of assets between the two trusts was accounted for. In particular, the lawyer had crafted the documentation so that the consideration paid was the amount notified to the parties by the accountant.

As no notification had yet been made, we caught up with the accountant and quickly determined that there could be four possible alternatives, namely:

1. Nil.
2. $1 (or some other nominal amount greater than nil).
3. The historical cost base.
4. The market value.

Each of these four alternatives had quite dramatically different consequences both from an accounting and tax perspective and Friday's meeting was a timely reminder of the need for a truly collaborative approach between the various professional specialists on behalf of the underlying client.

Until next week.

Matthew Burgess

Thursday, April 1, 2010

Pre CGT assets owned by family trusts

Given the Easter break for many next week, and our promise to post a blog posting each week - the posting that would have been next Monday is being posted today.

Over the last eighteen months, we have had an increasing number of clients needing to consider various aspects of the capital gains tax (CGT) rules as they relate to assets acquired pre CGT (i.e. before September 1985).

Someone like Bernard Salt (Salt is a renowned demographic consultant out of KPMG in Melbourne – see his website at would undoubtedly be able to explain that the reason for this has something to do with the baby boomer generation – i.e. people who were in the early to mid part of their wealth creation in the 1980s are now looking at retirement and succession issues.

Two of the potentially trickier aspects of the CGT regime, relate to the deeming provisions under Division 149 (formerly section 160ZZS) and CGT event K6 (formerly section 160ZZT).
As an accountant reminded me last week, there is an old ATO ruling (let me know if you want a copy of it) that confirms Division 149 can in fact apply to discretionary trusts – i.e. the underlying CGT status of trust assets can be impacted on by the way in which distributions have been made out of the trust over the term that the asset was owned.

Best wishes for Easter.

Matthew Burgess