Get Up** to speed: companies acting as trustees of wills

One issue that comes up regularly is whether a company can act as an executor and trustee of a will.

While there are a number of issues that need to be taken into account, broadly the position is as follows:

1. Individuals must apply for probate of a will, unless an exempted entity (eg the Public Trustee, Perpetual, ANZ Trustees or NAB Trustees etc) is appointed;
2. There are no such prohibitions at law in relation to who may act as trustee of a testamentary trust;
3. We regularly assist in setting up estate plans with a private company acting as the trustee of a testamentary trust; and
4. There are a range of issues that best practice suggests should be taken into account however – we often for example see the failure to take into account the rules under the Corporations Act prohibiting share self ownership, addressed in two previous posts.

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 REM song ‘Get up’.

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Trust closedowns**, or vesting (as the case may be)

Following on from last week's post, in the case of winding up the trust due to a lost trust deed, some of the considerations a trustee should generally take into account include:

1. should the trust property be sold with the net proceeds of sale then distributed to the beneficiaries?
2. what level of certainty does the trustee have that they have identified all potential beneficiaries and adequately discharged their obligations to all such beneficiaries?
3. should assets be transferred to beneficiaries as they are (that is as an 'in specie' distribution)?
4. what are the revenue consequences (particularly tax and stamp duty) of each distribution alternative?
5. have all loan accounts and unpaid present entitlements with beneficiaries been satisfied (if known)?
6. which beneficiaries will receive the distributions?
7. have all legal, accounting, tax and statutory requirements of both the trustee and the trust itself been complied with?
8. how will the records (if any) of the trust be stored following vesting?
9. will all beneficiaries indemnify the trustee for the actions taken by the trustee in historically administering the trust and for the wind itself?

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 Cure song 'Closedown’.

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Lost trust** deeds and trust vesting

If a trust deed cannot be found, commercially it can often be the case that the most responsible approach is for the trustee to wind up the trust. Indeed, there may be disgruntled beneficiaries or third parties that essentially force a trustee to adopt this course.

Any vesting of a trust is likely to trigger a range of revenue consequences, particularly taxation and stamp duty.

These revenue consequences normally arise where a positive determination is made by the trustee to vest a trust, the trustee will usually resolve to make one or more beneficiaries absolutely entitled to the assets (or specific assets) of the trust.

While not intended to be an exhaustive list, the revenue related ramifications of a trust vesting can include:

1. capital gains tax being payable on the increase in the value of any assets being transferred since the date they were acquired;
2. income tax being payable on non-capital assets, such as plant and equipment and trading stock;
3. stamp duty being payable on the transfer of the assets, to the extent they comprise dutiable property in the relevant jurisdiction;
4. additional tax, stamp duty and commercial costs being incurred to subsequently transfer the assets out of the name of the recipient beneficiary (if they want the assets then re-routed to a trust environment);
5. asset protection exposure for the beneficiary receiving the assets in the event they subsequently commit an act of bankruptcy;
6. considering the impact of the rule against perpetuities (which effectively prevents a distribution to another trust if this causes the assets to remain within a trust environment for more than 80 years); and
7. where an individual receives the assets, the need to update their estate plan to reflect the additional assets owned in their personal name.

If the vesting of a trust is being anticipated by the parties, many of the consequences above can be adequately managed through appropriate planning.

** For the trainspotters, the title of today's post is riffed from the Cure song 'Trust’.

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Please remember** - one reminder in relation to paying super death benefits

Last week's post considered the fact that in some circumstances a superannuation death benefit may be paid, other than to a member's dependants or legal personal representative (LPR) – which according to superannuation laws are generally the only two possible recipients.

One piece of feedback in relation to this related to how such a payment is permissible given the superannuation rules seem to so clearly mandate that death benefits must be paid to a dependant or LPR.

The reason that a wider class of potential recipients is possible is set out under Superannuation (Industry) Regulation 6.22(3), which states that the relevant conditions are satisfied if:

1. the trustee has not, after making reasonable enquiries, found either an LPR, or a dependant, of the member; and
2. the person in whose favour benefits are cashed is an individual.

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 Cure song 'Treasure'.

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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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I want you back!** Finding lost trust deeds

Recent posts have considered various issues in relation to lost trust deeds.

Due to the difficulties that arise when a trust deed is lost, the preferred solution is to locate the original deed.

The types of searches most likely to be successful in relation to locating a lost trust instrument include:

1. Former and or present banks, as trust deeds are often required to be produced to open accounts or enter into finance arrangements;
2. Past and present lawyers, including the lawyer who prepared the deed as they will often keep an original or copy of the trust deed for their own records;
3. Accountants, past and present for similar reasons as lawyers, they may have access to at least a copy of an original trust deed;
4. In some states, if the trust has ever owned real property it can be useful to contact the Land Titles Office, in that jurisdiction. It may be that the department will have retained a full copy of the trust instrument on the initial acquisition of the property;
5. This particular alternative is however not available in all jurisdictions. For example, New South Wales prohibits the disclosure of the existence of a trust relationship on title, so there will never be trust instruments with that department. The approach is also dependent on the exact practices from time to time of the relevant department;
6. Where none of the above pathways prove successful, there can be benefits in contacting the original settlor of the trust, particularly if they were not directly associated with the law firm that established the trust. Alternatively, other parties that have had any dealings with the trust from time to time should also be contacted. For example:
1. a beneficiary that is known to have historically received a distribution (or close relatives of deceased beneficiaries who are known to have received a distribution);
2. former trustees; and
3. parties who have held a position of authority with the trust, for example, appointors, principals, guardians or nominators.

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 Hoodoo Gurus song 'I want you back'.

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Something less than infinity** - what evidence is needed to 'recreate' a trust deed

Recent posts have considered leading cases in relation to lost trust deeds.

These cases highlight the critical role ancillary documentation plays in supporting the existence of the trust.

While ancillary materials will not necessarily prove the existence of a trust, their absence when producing a purported trust deed is likely to be fatal to any court application.

In particular, to varying degrees, each of the cases profiled confirm:

1. Supporting documentation, while not of itself enough to establish the existence of a trust, will be critical to the prospects of success in any court application;
2. In many respects, the more relevant ancillary documentation available, the more likely that a court application will be successful;
3. If the supporting documentation indicates at least how the capital and income of the trust are dealt with, the court may advise the trustee to administer the trust according to those documents; and
4. Similarly, the more evidence that a trustee can bring demonstrating that it has discharged all duties in relation to a trust, other than ensuring security of the trust deed, the more likely that the court application will be successful.

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 Guru Josh song 'Infinity'.

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