SMSFs and non-geared unit trusts: bulletproof**

While there are some, narrow exceptions, generally an SMSF is only able to invest in an ungeared unit trust and subject to strict requirements set out in the Superannuation (Supervision) Regulations (namely regulation 13.22C).

The provisions of regulation 13.22C are detailed and prescriptive and if there is any intention to access the concession regard should be had to the exact requirements.

One issue that often arises for SMSFs that do have a partial ownership interest in a trust that otherwise complies with regulation 13.22C is whether the SMSF can acquire additional units in the structure from a related party.

Generally such an acquisition by an SMSF is prohibited under the in-house asset rules, however there is an exemption from those rules in relation investments in trusts that comply with regulation 13.22C.

Furthermore there is an exemption from the prohibition that also applies against SMSFs acquiring assets from related parties for ownership interests in trusts that comply with regulation 13.22C.

The exceptions operate to specifically permit the acquisition of shares in companies or units in unit trusts, so long as all provisions of regulation 13.22C are satisfied at the time of the acquisition and on an ongoing basis.

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 Radiohead song ‘Bulletproof’.

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Accessing excepted trust income – avoid being a paranoid android**

Estate planning best practice dictates to ’begin with the end in mind’ and ensure a person's documentation achieves their objectives, for example, by including a testamentary trust.

This said, as previous posts have highlighted, it is possible to establish a trust following a person's death such as an estate proceeds trusts, superannuation proceeds trust or a special disability trust.

When considering the use of ‘post death testamentary trusts’ it is important to ensure income derived from gifted property to the structure does in fact create excepted trust income.

The Tax Office has provided useful guidance in this regard in Private Ruling 50621.

In the situation of this Ruling, minor children had each received gifts of money from 2 sources which were then invested on their behalf by a relative.

The 2 sources of the gifts were:

1. money left to them in a will; and
2. other gifts made to them by persons who were alive at the time the gifts were made.

The Tax Office confirmed its view that:

1. The investment earnings derived from monies that were sourced from a deceased estate (whether due to an absolute gift under a will or due to the intestacy rules) held in trust for minor beneficiaries were excepted income.
2. In contrast, the investment earnings from monies gifted to children by their living relatives were not excepted income.

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 Radiohead song ‘Paranoid android’.

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#exceptedtrustincome #estateplanning #Radiohead #bethechange #viewlegal #matthewburgess

Key factors courts consider before making a Crisp(s)** order

As set out in the post last week, a Crisp order can be made by courts to vary a life interest or right of occupancy in certain circumstances.

Generally, courts are reluctant to grant a Crisp order as they do not bring complete and immediate closure to a deceased estate.

This said, particularly where the house represents a significant proportion of the overall value of the estate, courts will at least consider a Crisp order.

The key issues that the courts normally take into account in this regard include:

1. The duration or length of the marriage. Generally Crisp orders are most relevant where the deceased spouse is in a second or subsequent life relationship;
2. The contribution by the current spouse to the deceased’s welfare;
3. The overall size of the estate;
4. The financial stability of the spouse, respecting the spouse’s need for security and independence for the balance of their life; and
5. The financial status and health of the beneficiaries nominated under the will to receive the capital value of the house on the ending of the (initially designed) right to occupy or life interest.

Clearly, each of these factors are subjective and therefore any litigation where a Crisp order is sought will largely turn on the court’s interpretation of each competing interest.

** for the trainspotters, the title today is riffed from the Radiohead song ‘True love waits’.

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(running) and continuing confusion** with fees paid via an SMSF

One issue that arises relatively frequently is whether certain kinds of expenses can be paid by an SMSF.

Previous posts have touched on this issue.

Having recently reviewed one adviser's material on them joining a new licensee group, it was interesting to see that part of the confusion with the rules in this area, particularly for financial advisers and risk advisers, undoubtedly is because of the relatively vague standards that most licensees seem to impose.

In this particular situation, the licensee rules provided that advisers could charge an SMSF for all advice that was either product related or strategically relevant to that particular SMSF.

In turn, the rules stated that charging the SMSF for any other advice that is not so related will potentially breach the sole purpose test and was therefore prohibited.

Unfortunately, the vagueness of the rules under this type of approach can make it difficult for advisers and clients alike to make decisions in relation to areas such as binding death benefit nominations and wider estate planning documentation, and until there is clearer guidance from, for example, the Tax Office, there is likely to be continuing uncertainty.

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 Radiohead song ‘Anyone can play guitar’. View hear (sic):

2 (+2 =5)** step deeds of variation

A common theme of posts over time has been the critical need for trustees (and their advisers) to read the provisions of any trust deed.

One issue that arises regularly under trust deeds is a variation power that may only be used in relation to certain clauses in the trust deed.

Where a trustee wishes to amend clauses that are protected from variation, one strategy that is often considered involves preparing:

1. an initial deed of variation, which amends the power to vary under the trust deed to remove the prohibitions; and
2. a second deed of variation implementing the desired changes.

Obviously, this approach is only available where the variation power itself is not one of the clauses that the prohibition on variation applies to.

Even where the approach, is on the face of the trust deed available, there are cases that would suggest this 2-step process is void for being a fraud on the power to amend.

The leading case in this area is Jamaica Ltd vs. Charlton [1999] W.L.R. 1399.

In particular, the decision confirms that the trustee cannot look to achieve by two steps, what was unable to be achieved by one step.

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 Radiohead song ‘2+2=5’. View hear (sic):