Tuesday, March 30, 2021

Sometimes you get kicked** Trust disclaimers … some further lessons

As mentioned in last week’s post, a previous post has explored arguably the leading case in relation to trust disclaimers, being the decision in FCT vs. Ramsden [2005] FCAFC 39. 

The decision in Smeaton Grange Holdings Pty Ltd vs. Chief Commissioner of State Revenue [2016] NSWSC 1594 provides further clarity around the key issues in this regard. 

While the case is primarily focused on payroll tax grouping issues, it does provide an analysis of the key principles in relation to trust disclaimers that are also important for income tax purposes. 

In summary, the case confirms: 
  1. No person can be compelled to accept a gift against their wishes. This principle is derived from the leading English case Re Gulbenkian’s Settlements (No.2) [1970] CH408. Again, if you would like a copy of this case, please let me know.
  2. A beneficiary of a discretionary trust can therefore disclaim their interests unilaterally by way of deed poll, which means that no consideration needs to be paid.
  3. A disclaimer cannot be made however if a person has full knowledge of all aspects of their entitlements and then fails to take steps to make the disclaimer.
  4. A person can disclaim their interest in specific entitlements to income or capital of a trust without disclaiming their interest in the entire trust. In this situation, the disclaimer only applies in relation to the specific interest defined in the disclaimer.
  5. Alternatively, a beneficiary can disclaim their interest in the entire trust.
  6. Disclaimers, once made, operate retrospectively, thereby meaning that the entitlement disclaimed is effectively deemed to have never arisen. Contrast this with a renunciation, which is effective prospectively.
  7. A disclaimer or renunciation can be made from time to time in relation to distributions of income and capital in any income year, however if the person is a default beneficiary the disclaimer or renunciation must be in relation to their entire interest.
  8. To be effective a disclaimer must be made within a reasonable time period of the beneficiary becoming aware of the distribution. The importance of this aspect can not be understated and will be explored in more detail next week.
As usual, please contact me if you would like access to any of the content mentioned in this post. 

** for the trainspotters, the title today is riffed from the INXS song ‘Kick’. View hear (sic):