As set out in earlier posts, and with thanks to the Television Education Network, today’s post considers the above mentioned topic in a ‘vidcast’ at the following link - https://youtu.be/VG1Bh5XQOoY
As usual, an edited transcript of the presentation for those that cannot (or choose not) to view it is below –
Domazet is arguably, one of the highest high profile trust vesting-related cases. As usual, if you would like a copy of the decision please contact me.
The factual matrix in board terms was as follows.
The original trust was set up in the 1970s, named here as the No. 1 trust.
Many years later there is a desire to distribute to another trust (named here as the No.2 trust). The No.1 trust was set up in the 1970’s. The No.2 trust set up in the 2010s - in other words, many years later.
The provisions in the trust deed for the No.1 trust provided that distributions to another trust as beneficiary were possible, as long as the receiving trust ended before the vesting date of the No.1 trust.
Here, No.1 trust, or the trustee and its advisers assumed that the vesting date of the No.2 trust would be 80 years.
The reason they assumed that is because the Australian Capital Territory (ACT) had at one point introduced the statutory 80-year perpetuity period and the No. 1 trust was established in the ACT.
It was therefore assumed that the legislation applied. The problem was that they had misunderstood the way the statutory limit had been implemented.
In particular, each Australian jurisdiction implemented the 80 years statutory limit at different points in time. The adviser for the No.1 trust was Queensland-based.
The Queensland legislation had come in before the No.1 trust was set up. So, they just assumed that would be the case in the ACT. In fact, the ACT legislation came in after the No.1 trust was set up.
They then amended the No. 2 trust to ensure it ended with 80 years of the No. 1 trust being set up.
What this meant in the practical sense was that when the distributions took place, the No.2 trust in fact had a vesting date after the No.1 trust because the No. 1 trust did not with certainty have an 80 year life.
This was a big problem because it meant that distribution was void according to the terms of the No. 1 trust.
What that meant was that the No.1 trust would be assessed, as if there was no trust distribution at all, which triggers a flat rate of tax of 48.5 cents. To the extent there were any capital gains, the 50% general discount would also be completely ignored. These issues are explored further in an earlier post, see Trust distributions – three reminders.
Next week's post with consider some possible solutions given the factual matrix here.