Trusts

The Law of Trusts is continually changing. Advisors need to ensure that their clients' needs when ordering a trust deed are considered and satisfied. It is not a case of simpler drafting or discounted deeds.

The law is constantly evolving in relation to trusts and advisors need to be comfortable that the deeds they are recommending to their clients are up to date and contain the most relevant clauses and powers for all their clients' needs.

Discretionary trusts (including succession trusts) established in Australia today should have the following key features:

Allow the Trustee to benefit so that the Trustee has general powers under the Perpetuities Act 1984,
Provide that the Trustee can determine the income of the estate be income according to ordinary accounting concepts,
Contain a Karger v Paul clause to prevent the need for the Trustee to give real and genuine consideration to all beneficiaries (i.e. Wareham v Marsella and Owies v JJE Nominees Pty Limited),
Contain a perpetuity period clause that provides for a perpetuity period equal to the statutory period without amendment restrictions to the perpetuity period,
Contain a Proper Law clause that allows for the changing of the State governing the Proper Law,
Contain clauses that allow for streaming of capital gains and franked dividends,
Allow for amendments including the conversion to a succession trust.

Trusts are a combination of four elements.

There are four essential elements present in every form of trust: the trustee, the trust property, the beneficiary or charitable purpose or (exceptionally) non-charitable purpose, and the personal obligation annexed to property.

Para 1.04 Jacobs Law of Trusts in Australia 8th Edition

There is no actual meaning of a discretionary trust or unit trust without a statutory definition.

"unit trust", like "discretionary trust", in the absence of an applicable statutory definition, does not have a constant, fixed normative meaning

CPT Custodian Pty Limited v Commissioner of State Revenue [2005] HCA53 at para 15 Justices McHugh, Gummow, Callinan, Heydon and Chief Justice Gleeson

It is with the above in mind that we must question the purpose of the words of a particular trust. Does it fit the intended purpose and what of the need to amend in the future?

With the changes to State Revenue laws taking effect, it is challenging to select the most appropriate trust to suit the purpose.

Many trust deeds exclude the trustee from benefiting. This means that under section 6 of the Perpetuities Act 1984 only special powers may be exercised. The trustee should be allowed to benefit.

We are noticing many 'fixed trusts', especially for New South Wales, that do not satisfy the 'relevant criteria' in section 3A(3B) of the Land Tax Management Act 1956. Accumulation, redemption and amendment clauses being the main issues.

It has also come to the attention of MGS that Revenue NSW is deciding whether a discretionary trust that holds residential property or units in a unit trust that holds residential property is a foreign trust is based on an amendment done before 31 December 2020. This ignores the transitional provisions inserted into Schedule 2 of the Land Tax Management Act 1956. The no amendment requirement for trusts established before 24 June 2020:

A trust that satisfies the no foreign beneficiary requirement under section 5D of the Land Tax Act 1956 immediately before the commencement of that section is considered for the purposes of that section to prevent a foreign person from being a beneficiary of the trust (without having to satisfy the no amendment requirement under that section).

[emphasis added]

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Firms are approaching MGS for customised trust deeds that:

Provide for the distribution of income and capital as per the persons will,
Provide a platform for property developers to develop, sell and retain property,
Assist is cloning under Queensland duty laws and the CGT concession,
Move property and businesses in Western Australia without attracting duty or income tax,
Restructure property in New South Wales, Victoria and Queensland without duty, income tax or GST.
Provide a platform for the safe bank of Mom and Dad,
Assist with the Landholder provisions in a particular State or Territory,
Converting trusts to fixed unit trusts with the 'relevant criteria' for New South Wales,
Amending deeds to enable the use of the changes made by Tax Laws Amendment (2011 Measures No. 5) Act 2011 (Cth).

If you have any queries regarding converting your existing trust deed or ordering a new trust please Contact Us.