Tuesday, April 19, 2022

Should trustees have the power to gift on their dashboard**

One question that comes up from time to time is whether the trustees of a trust should have the power to gift assets of the trust – a standard power in most discretionary trusts (including testamentary trusts) drafted by View.

The power to gift (including to a non-beneficiary), like all the powers, is included based on our extensive experience in this area, often as a result of a difficulty faced by customers due to the absence of the particular power.

Each power is designed to minimise the risk of difficulties arising in the future, particularly as tax legislation, stamp duty rules and trust laws continue to evolve.

While we can amend any powers that there are concerns about, our recommendation always instead is to ensure the right trustees are appointed and trust them to decide how best to administer the trust, with reference to any wishes set out in a memorandum of directions.

The power to gift is one we see used mainly for tax planning reasons, for example:
  1. to possibly help avoid restrictions any family trust election may impose
  2. where a gift to a charity is to be made
  3. to make transfers to other trusts, not as a distribution
Where there are concerns about allowing a trustee the power to gift, some issues to consider include:
  1. There is however a significant difference between being a beneficiary and merely a potential recipient of a gift.
  2. A hypothetical potential recipient of a gift has no rights at all under the trust.
  3. In contrast, a potential beneficiary can (for example) force the trustee to correctly administer the trust – such a right would include preventing a proposed gift or holding the trustee accountable for a breach of trust in making an inappropriate gift.
  4. While we generally recommend the gifting provision be retained, particularly if there is any chance that philanthropic activities may occur in the future, our experience is that any potential issues are resolved by ensuring appropriate trustees are selected who understand and take their role seriously.
  5. Practically, if the trustee is not appropriate, our experience is that the terms of the deed become largely irrelevant (ie they are ignored anyway). In part (as a high profile example) this is what various children of Gina Rinehart were arguing about her conduct as trustee of a trust set up under her father’s estate plan.
As usual, please contact me if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Modest Mouse song 'Dashboard'.