Tuesday, May 23, 2017

Seven dwarves, pizzas for the homeless and pre-chopped broccoli florets** – taking the detail to a whole new level

View Blog Seven dwarves, pizzas for the homeless and pre-chopped broccoli florets** – taking the detail to a whole new level by Matthew Burgess

Following last week’s post, where I mentioned that, particularly in New South Wales, it is often the case that trustees are expressly prohibited from being beneficiaries of discretionary trusts there were a number of questions relayed to me. Thank you also for the suggestions as to what hair product Van Halen would have likely demanded at the height of their fame in the mid 1980s (see – Brown M&Ms, invasion by aliens and when trust beneficiaries aren’t beneficiaries).

The key reason the ‘trustee can’t be a beneficiary’ prohibition is so prevalent in New South Wales is that under the stamp duty laws there, in order for a trustee to be permitted to be appointed (particularly where there is a change of trustee of a pre-existing trust), that trustee must not be a potential beneficiary of the trust.

Obviously, there are a range of asset protection related issues in this regard as well. At the centre of these issues is the fact that a trustee is directly liable for misadventures of the trust. As a general rule, the maximum value of a trustee company from time to time should never be more than a nominal amount – ie $2. A trustee company receiving distributions as a corporate beneficiary will breach this rule immediately.

Importantly however, many trust deed providers that offer deeds nationally, will incorporate the prohibition on a trustee being a potential beneficiary, even for trusts that do not otherwise have any connection with New South Wales.

This prohibition will often be weaved into a trust instrument in a less than obvious manner. Unless there is a pedantic approach to reviewing the terms of a trust deed the prohibition will be missed.

In summary – yet another example of the importance of the mantra ‘read the deed’.

As mentioned last week, our upcoming webinar ‘Trust Horror Stories’ will have many case study examples highlighting key issues to be aware of with managing trusts.

Find out more here - https://viewlegal.com.au/product/webinar-trust-horror-stories/

Watch the promo video below.

** for the trainspotters, the author of the theme song of ‘Trainspotting’, being ‘Lust for Life’ (see - https://www.youtube.com/watch?v=jQvUBf5l7Vw) Iggy Pop allegedly had a contract rider requiring seven dwarves, pizzas to give to the homeless, and pre-chopped broccoli florets (to make them easier to throw away). Again there is a prize for anyone who can share a more unique list of riders.