A drafting lesson: waiting for you in the shadows**

Recently we were reviewed a clause in a trust deed that confirmed the beneficiaries were ‘any and all of the children, grandchildren or great grandchildren of the mother and the father.

The drafting approach is a common one, and can lead to 2 starkly different interpretations, namely either all of the children, grandchildren and great grandchildren of:

1. the relationship between the father and the mother; or
2. each of the father and the mother (i.e. including children from other relationships).

Generally the position adopted by the courts is that where a phrase is capable of more than one correct grammatical interpretation the construction that conforms with current usage should prevail, while also having regard to the circumstances surrounding the establishment of the trust.

One of the leading cases is Boranga v Flintoff (1997) 19 WAR 1.

The case confirms that the primary task of courts is to discern the intention of the settlor from the words of the relevant trust deed, with reference to the position as at time the deed was entered into.

In this case the following facts were considered to be relevant in determining whether step-children would be included as beneficiaries under the phrase 'the children of A and B’:

1. the ages of the stepchildren at the time the trust was established and whether the step- children were dependants of A or B at the time;
2. whether the step-children had any special needs, e.g. a disability;
3. the existence and ages of any children from the relationship of A and B at the settlement date;
4. the ages of A and B at the settlement date and whether it was likely there would be any further children from the relationship of A and B; and
5. the pattern of trust distributions and whether the step-children received distributions from the trust.

Having factored in each of the above issues, it was held that the phrase 'the children and remoter issue of the said A and the said B’ included children of either A or B – in other words stepchildren were included.

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** For the trainspotters, the title of today's post is riffed from the Thurston Moore song ‘Smoke of dreams’.

View here:

Tax Office tracing** of trust distributions

Following on from last week’s post, arguably, the starkest example of the Tax Office’s attitude concerns its review around identification of beneficiaries of certain distributions, particularly where trust to trust distributions are involved. 

In particular, trustees are required to complete an Ultimate Beneficiary Statement where a distribution is made to another trust, failing which ultimate beneficiary non-disclosure tax is imposed on the trustee of the original trust equal to the highest marginal tax rate plus the Medicare levy. 

The Tax Office also previously established its ‘Trusts Taskforce’ which, in addition to the goal of identifying ‘egregious tax avoidance and evasion using trust structures’ is stated to be focused on: 

1. unregistered trusts and their beneficiaries;
2. trusts that are irregular in lodging tax returns;
3. offshore trust dealings involving secrecy jurisdictions;
4. sham transactions; and
5. artificial re-characterisation of amounts.

The Tax Office has however stated that the intended targets of the Taskforce are high risk taxpayers and not ordinary arrangements and tax planning associated with genuine business or family dealings. 

** for the trainspotters, the title today is riffed from the Beck song ‘Nicotine & Gravy’. View hear (sic):