Lost SMSF trust deeds – an (un) kool thing**

As mentioned in recent posts, lost trust deeds can cause significant difficulties for trustees of family trusts.

In the context of SMSFs and other forms of fixed trusts with a narrow range of known beneficiaries (who can be proved via other evidence), a court application for adopting a new trust deed is generally seen as being unlikely to be necessary from a trust law perspective.

However, the federal court decision in Kafataris v DCT [2008] FCA 1454 highlights that even for trusts with an ostensibly narrow range of potential ‘beneficiaries’ care must be taken.

In this case a husband and wife established separate SMSFs appointing themselves as sole members. They declared a property owned by them as property of their respective SMSFs.

In considering who the ‘beneficiaries’ of each SMSF were, it was held that upon construction of the SMSF deeds, the class of beneficiaries was broader than each single member. This was because the trust deed allowed the trustee to pay benefits to the member’s dependants and even relatives (if there were no dependants, as defined under the superannuation legislation) of the member.

As such, the potential class of beneficiaries included 21 different people.

Best practice therefore dictates that each person who can enforce the due administration of the trust should be a party to and sign a deed of variation that seeks to implement a replacement for a lost SMSF trust deed.

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 Sonic Youth song 'Kool thing'.

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Death (to our friends) ** duty and joint tenancy

For many years in Australia, one of the most popular tax planning tools to manage death duties involved assets being held as joint tenants, instead of tenants in common.

Previous posts have the distinction between these two ownership structures. As usual, please contact me if you would like access to this content.

A surviving joint tenant receives the asset automatically (without anything passing via the deceased owner's estate). Joint tenancy ownership was often seen as the easiest way to delay the imposition of a death duty for as long as possible.

In jurisdictions that still have death duties, this ownership structure can provide a pathway to manage the tax impost.

Interestingly, under Australian law, the strategy can still provide planning opportunities.

In particular, where an asset is owned as joint tenants with a non-resident, the tax that would otherwise be paid by a non-resident on the death of a co-owner under capital gains tax (CGT) event K3 can potentially be avoided if the relevant asset is owned as a joint tenancy. This is because CGT event K3 is only triggered where assets actually pass via an estate.

It is important to note that in recent years the federal government moved to close this potential 'loophole'. At this stage however, no such changes have occurred.

** for the trainspotters, the title here is riffed from a Sonic Youth tune ‘Death to our friends’.