Monday, July 11, 2011

Lineal descendant trusts post Bamford

As touched on in a recent post, often 'lineal descendant trusts' will adopt a 'hybrid' approach whereby:

1) The capital is protected for lineal descendants.

2) The income may be distributed to a wide range of potential beneficiaries (including non lineal descendants).

We have seen a number of instances lately where trusts that were originally prepared along the lines outlined above where, following Bamford on the recent Government legislation concerning streaming, the client was wanting to redefine income and in particular allow capital gains to form part of the net income of the trust. While (as is the case in many of these areas) there are a number of competing arguments, there is a real risk that this kind of amendment to a 'hybrid' lineal descendant trust would amount to a resettlement for tax purposes.

For regular readers, you will recall that an earlier posting specifically mentions the Tax Office’s Statement of Principles and provides a link to that document.

Until next week.