We got the (mere) power**

The concept of a mere power as compared to a trust power under a family trust can be relatively complex.

In basic terms, a mere power relates to the more administrative and mechanical aspects of the trust. It is discretionary in nature which a trustee can choose whether they exercise. In contrast trust powers go to the very heart of the trust instrument and the trustee is required to exercise.

Often, the distinction between a mere power and a trust power is of no particular practical importance, however last week we had a situation where a purported variation to a trust deed was being challenged by a disgruntled beneficiary.

One of their lines of argument related to the trustee not having the power to make the offending variation because they were acting outside the scope of the variation power.

In particular, it was being argued that the variation power only permitted changes to the mere power (i.e. in relation to administrative issues) and not in relation to more substantive terms of the trust.
Arguably the leading case in this area is Re Gulbenkian's Settlements (1970) AC 580. As usual, please let me know if you would like a copy of the decision.

The key quote commenting on the difference between a ‘mere power’ and a ‘trust power’ is as follows:

‘The basic difference between a mere power and a trust power is that in the first case, trustees owe no duty to exercise it and the relevant fund or income falls to be dealt with in accordance with the trusts in default of the exercise, whereas in the second case the trustee must exercise a power and in default the court will.’

** For the trainspotters, ‘We got the power’ is a song by Gorillaz from 2017 listen hear (sic):

 

Death, taxes and tax deductions: there’s a way to get there (& I’ll figure it out)**

As is often quoted, there are only three certainties in life, death, taxes and changes to the superannuation system.

There are some particular intricacies in relation to death and taxes as they relate to charitable giving, and wherever there is an intention for maximising the benefits passing to a charity, the tax implications must be considered.

Broadly, the three key rules to be aware of are as follows:

1. Contributions made via a deceased estate to a deductible gift recipient (DGR) are not deductible. This should be contrasted with the same gift being made by the will maker prior to death which are deductible.
2. While generally assets passing via a deceased estate can access capital gains tax (CGT) roll-over, gifts to a tax exempt entity do not trigger any roll-over as such. Rather, on receipt by the DGR of a specific asset gifted under a will, the tax liability is simply disregarded and the DGR inherits the deceased’s cost base (or market value at date of death if a pre-CGT asset). In turn, as the DGR is tax exempt it should have no tax liability on any subsequent disposal of the asset.
3. If an asset of an estate is sold in order to make a cash contribution to a DGR, the tax liability will not be ignored, and in turn, the estate is not entitled to a deduction (see Tax Office Interpretative Decision 2003/173).

Depending on the factual matrix, best practice is often to utilise a memorandum of directions to achieve the willmaker’s objectives. For example, distributing assets to a particular beneficiary and then allowing them to make the desired contribution to the DGR and obtain the tax deduction.

As usual, please make contact 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 Bob Dylan song ‘Highlands’.

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