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.

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.

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.

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.