As set out in earlier posts, and with thanks to the Television Education Network, today’s post addresses the issue of ‘What roles do ‘quasi-ownership’ arrangements play in succession planning ?’ at the following link - http://youtu.be/oUcuYyRXZ_U
As usual, a transcript of the presentation for those that cannot (or choose not) to view the presentation is below –
This is probably a really developing area in terms of what we've seen in recent times, because out of the GFC, the changes to trust law that many of us have experienced first hand in terms of the impact of relationship breakdowns and/or the intergenerational transfer that goes wrong; you find in many family scenarios they are effectively wanting to, if not fully rule from the grave, at least do a very good impersonation of it.
In that scenario, as much as we've spoken earlier today about secured loan arrangements and actually transferring assets down and securing those under a loan arrangement; a more ‘bespoke’ version of that is never having the asset leave the master trust in the first place and using tools such as letters of wishes or the way in which the trustee company constitution is crafted to allow the underlying beneficiaries to have indirect access to the assets, whether they be business assets or investment assets.
Beneficiaries will probably still have to meet KPIs in relation to their performance and running of those assets, but they never actually get the physical ownership or the legal control of them.
It may be overtime that beneficiaries do ultimately receive legal ownership or legal control, but for an interim period, which may last for many years, what this final form of structure does is effectively keep the assets within the initial master trust structure and really only have a synthetic or notional allocation of assets made, at a trustee level, for the underlying beneficiaries.
Until next week.
Monday, July 30, 2012
Monday, July 23, 2012
War stories
As many regular readers will be
aware, examples are often used in these posts and our various seminar
presentations based on client situations.
This said, unless the particular client scenario has gone through the court system (and is therefore publicly available information), we are always very careful to not base our examples entirely on any one particular client so as to ensure client confidentiality is maintained.
In this context then, we are also always supportive of any adviser that wants to use (and where appropriate embellish) case study examples that we may have historically shared when they are positioning concepts with clients.
Until next week.
This said, unless the particular client scenario has gone through the court system (and is therefore publicly available information), we are always very careful to not base our examples entirely on any one particular client so as to ensure client confidentiality is maintained.
In this context then, we are also always supportive of any adviser that wants to use (and where appropriate embellish) case study examples that we may have historically shared when they are positioning concepts with clients.
Until next week.
Monday, July 16, 2012
Prohibitions on trust deed variations
As mentioned last week, we often
find trust deeds have prohibitions on a trustee’s ability to vary the document.
Some of the issues to be aware of in this regard include:
1 Often variations can only be made with the consent of someone other than the trustee, for example an appointor, guardian or even the settlor.
2 In some cases, variations can only be made to the core (or trust) provisions of the deed, as opposed to the more general powers, which will usually limit the ability to vary the income provisions.
3 Alternatively, while powers can be added to a trust, a deed will sometimes provide that any existing powers cannot be varied – this can be particularly problematic where there is a desire to update the income distribution provisions.
4 There are countless other examples of restrictions on variations and indeed, we have come across deeds where there is a blanket prohibition on making variations to the deed, or at least on variations to particular clauses in the deed.
While there are often workarounds no matter what restriction is imposed, the fundamental rule to remember is that each and every deed must be read before embarking on a variation.
Some of the issues to be aware of in this regard include:
1 Often variations can only be made with the consent of someone other than the trustee, for example an appointor, guardian or even the settlor.
2 In some cases, variations can only be made to the core (or trust) provisions of the deed, as opposed to the more general powers, which will usually limit the ability to vary the income provisions.
3 Alternatively, while powers can be added to a trust, a deed will sometimes provide that any existing powers cannot be varied – this can be particularly problematic where there is a desire to update the income distribution provisions.
4 There are countless other examples of restrictions on variations and indeed, we have come across deeds where there is a blanket prohibition on making variations to the deed, or at least on variations to particular clauses in the deed.
While there are often workarounds no matter what restriction is imposed, the fundamental rule to remember is that each and every deed must be read before embarking on a variation.
Until next week.
Monday, July 9, 2012
ATO reminder – read the deed
Following on from the recent posts
about the ATO draft determination on resettlements (TD2012/D4), today's post is
in effect a further reminder of an earlier post that focused on the catch
phrase 'Read the Deed', again with thanks to co View Legal director Tara Lucke.
One of the key themes in the recent ATO determination is that a trust variation must be made within the scope of the variation power in the trust deed.
If a purported variation is made outside the scope of the particular variation power, the ATO has provided guidance that this may result in the termination of a trust (i.e. a resettlement for CGT purposes).
We are constantly encountering deeds that have significant limitations on the variation power, particularly with the regular amendments we are doing for clients of accounting firms to ensure that trust deeds are up-to-date for all recent changes in law.
Next week’s post will focus on some of the common variation prohibitions we come across.
Until next week.
One of the key themes in the recent ATO determination is that a trust variation must be made within the scope of the variation power in the trust deed.
If a purported variation is made outside the scope of the particular variation power, the ATO has provided guidance that this may result in the termination of a trust (i.e. a resettlement for CGT purposes).
We are constantly encountering deeds that have significant limitations on the variation power, particularly with the regular amendments we are doing for clients of accounting firms to ensure that trust deeds are up-to-date for all recent changes in law.
Next week’s post will focus on some of the common variation prohibitions we come across.
Until next week.
Monday, July 2, 2012
More comments on ATO resettlements determination
As mentioned in the last post,
the ATO has released a draft determination, TD2012/D4, in relation to
resettlements.
With particular thanks to View Legal director Tara Lucke, today’s post focuses on the interplay of the draft determination with the ATO’s previous published position on resettlements – the Statement of Principles.
In summary, according to the determination:
1. The ATO has withdrawn its Statement of Principles as of April 2012.
2. The ATO accepts that although the Clark and Commercial Nominee cases were decided in perhaps slightly different contexts to many of the issues dealt with in the Statement of Principles, the conclusions reached in each of those two cases do have a broader application.
3. Provided an amendment to a trust is valid at trust law and is in accordance with the terms of the trust instrument, CGT event E1 should not be triggered.
4. The ATO will expect any deed of variation to be made in accordance with trust law principles and the particular requirements of the trust instrument in order for the amendment to be effective.
With particular thanks to View Legal director Tara Lucke, today’s post focuses on the interplay of the draft determination with the ATO’s previous published position on resettlements – the Statement of Principles.
In summary, according to the determination:
1. The ATO has withdrawn its Statement of Principles as of April 2012.
2. The ATO accepts that although the Clark and Commercial Nominee cases were decided in perhaps slightly different contexts to many of the issues dealt with in the Statement of Principles, the conclusions reached in each of those two cases do have a broader application.
3. Provided an amendment to a trust is valid at trust law and is in accordance with the terms of the trust instrument, CGT event E1 should not be triggered.
4. The ATO will expect any deed of variation to be made in accordance with trust law principles and the particular requirements of the trust instrument in order for the amendment to be effective.
Until next week.
Friday, June 22, 2012
ATO releases draft determination on trust resettlements
Posts from last year looked at the Clark decision. In
that case, the court held that significant changes to a trust instrument would
not of themselves cause a resettlement of the trust for tax purposes.
As mentioned in last week’s post, the Tax Office has now released draft determination TD2012/D4 which provides some further clarity around when the Tax Office will deem changes to a trust to amount to a capital gains tax event under CGT events E1 and E2 (i.e. a resettlement).
In broad terms, the Tax Office states that unless variations cause a trust to terminate, then there will be no resettlement for tax purposes.
A number of examples are provided, which give some guidance around issues such as changes of beneficiaries and update to address distribution of trust income.
Unfortunately, the examples provided are not particularly comprehensive and issues such as changing appointors and multiple changes (for example, changing beneficiaries, the trustee and the appointor as part of an estate planning exercise) are not specifically addressed.
This said, the draft determination should provide a level of confidence that relatively significant changes to trust instruments can be made without adverse tax consequences, although it remains necessary to also consider the separate stamp duty and trust law implications of any such change.
A full copy of the draft determination is at the following link – http://law.ato.gov.au/atolaw/view.htm?docid=%22DXT%2FTD2012D4%2FNAT%2FATO%2F00001%22
Until next week.
As mentioned in last week’s post, the Tax Office has now released draft determination TD2012/D4 which provides some further clarity around when the Tax Office will deem changes to a trust to amount to a capital gains tax event under CGT events E1 and E2 (i.e. a resettlement).
In broad terms, the Tax Office states that unless variations cause a trust to terminate, then there will be no resettlement for tax purposes.
A number of examples are provided, which give some guidance around issues such as changes of beneficiaries and update to address distribution of trust income.
Unfortunately, the examples provided are not particularly comprehensive and issues such as changing appointors and multiple changes (for example, changing beneficiaries, the trustee and the appointor as part of an estate planning exercise) are not specifically addressed.
This said, the draft determination should provide a level of confidence that relatively significant changes to trust instruments can be made without adverse tax consequences, although it remains necessary to also consider the separate stamp duty and trust law implications of any such change.
A full copy of the draft determination is at the following link – http://law.ato.gov.au/atolaw/view.htm?docid=%22DXT%2FTD2012D4%2FNAT%2FATO%2F00001%22
Until next week.
Monday, June 18, 2012
Discretionary trust deeds health check
Over time, View Legal has developed a 'trust review checklist' that outlines some of the key issues which should be considered as part
of a general ‘health check’ of a discretionary trust deed to ensure it aligns
with the constantly evolving legal requirements regarding trusts and tax
implications.
An adviser after reading the document made contact in relation to the potential outcomes in the event a trustee fails to make a resolution.
We confirmed that there are the two main potential outcomes; namely that the trustee is taxed or the default beneficiaries are taxed. Which of the two outcomes applies will depend on how the trust deed is crafted.
In this regard, the leading case in this area is Ramsden.
The deed in Ramsden provided that a purported default distribution did not actually operate on its face and therefore the trustee was taxed at the top marginal rate. This can be a particularly poor outcome where there are capital gains given there is no entitlement to the 50% discount.
Conversely, we have seen many situations where the default provisions apply such that all distributions are made to a corporate beneficiary. To the extent that there are capital gains that would otherwise be entitled to the 50% discount, this outcome will trigger adverse (and unnecessary) tax costs.
One other issue to be aware of, which again reinforces the importance of reading a deed, is that the actual timing of the resolution must be in accordance with the deed, even if legislation or Tax Office practice otherwise permits a later date.
For those interested to review the abovementioned summary, go to the 'core services' section of the View Legal website (viewlegal.com.au)
The next post will look at the Tax Office Determination released last week on trust variations.
An adviser after reading the document made contact in relation to the potential outcomes in the event a trustee fails to make a resolution.
We confirmed that there are the two main potential outcomes; namely that the trustee is taxed or the default beneficiaries are taxed. Which of the two outcomes applies will depend on how the trust deed is crafted.
In this regard, the leading case in this area is Ramsden.
The deed in Ramsden provided that a purported default distribution did not actually operate on its face and therefore the trustee was taxed at the top marginal rate. This can be a particularly poor outcome where there are capital gains given there is no entitlement to the 50% discount.
Conversely, we have seen many situations where the default provisions apply such that all distributions are made to a corporate beneficiary. To the extent that there are capital gains that would otherwise be entitled to the 50% discount, this outcome will trigger adverse (and unnecessary) tax costs.
One other issue to be aware of, which again reinforces the importance of reading a deed, is that the actual timing of the resolution must be in accordance with the deed, even if legislation or Tax Office practice otherwise permits a later date.
For those interested to review the abovementioned summary, go to the 'core services' section of the View Legal website (viewlegal.com.au)
The next post will look at the Tax Office Determination released last week on trust variations.
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