Hi everyone,
Ok, this is a post for a friend. He would have posted himself, but his computer is being upgraded over the next few days so he's offline. I've not had to do this before, so have never encountered it & don't know the answer.
There's the situation: My friend (Cameron) wants to set up a family trust with his wife as trustee. He wants to give property investing a go before committing to setting up a trustee company. When he asked his accountant if he could set up a corporate trustee later & just change the trustee over he was told that he can do this, but this is considered 'resettlement' of the trust & he would therefore have to pay stamp duty on the total of trust assets.
Is this normal? Is there a way around this? Has he just outgrown his accountant's knowledge? It seems a bit silly, really. I'm sure some of you out there have probably done this or known someone who's done this, so if you have any suggestions for Cameron he'd love to hear them!
Also, do you need to keep separate records for the trust & the trustee company? Our accountant has always done the books for our trust, so I'm not exactly sure what's required.
Thanks.
E.
Hi there
I'm not sure the Accountant is entirely correct to state there would be a resettlement and there would need to be payment of stamp duty on all trust assets provided all that is being done is an appointment of a new trustee – you should probably check with your solicitor in this contextyou normally have to prepare statutory declarations to the office of state revenue stating there has been no resettlementit does seem to be an unnecessary expense further down the track as any assets bought in the name of the wife – would have to have transfers to the new trustee company – which is an added expensewhy not have it the other way round – incur the expense of setting up the company – make a commitment to investment that make the costs of keeping the trustee company worthwhile and not have the later transfer costs and costs of satisfying any requirements of the office of state revenue – which could end up being equivalent – and also not have those queries over a possible resettlementthanksHi Raddles,
Thanks for that. I suggested to him to go the whole way too. I can, though, understand his concerns as it's something he hasn't done before. As a friend I would rather him give it a go by putting a toe in than not have a go at all.
I will suggest he check with his solicitor.
E.
This depends on the wording of the trust deed and what it allows for. Some will allow for the changing of a trustee while others do not. I do not see why some deeds have it any other way, but there are some that will trigger stamp duty and possibly CGT if need to be resettled. Others that will need a minute entry only. This is my prefered option.
Best to ask these questions of the solicitor setting up the deed for you and ensuring the accountant knows how to do it also. If not, maybe time to get a new accountant….
Hi there Cata
just in relation to your comments with respect to a trust deed – I don't believe I have ever seen a trust deed whether discretionary trust, hybrid or superannuation fund which does not have a provision to appoint a new trustee – there are certainly different methods of appointment – but all have them – it would be unworkable to have a situation which potentially can run for 80 years without the ability to appoint a new trustee – as a trustee can give notice and decide not to act further.I am actually speaking from experience of 20 years as a legal practitioner who has in the past prepared deeds of appointment of new trustees, transfers to those new trustees and the documents required to satisfy the requirements of the stamp duties office in five different jurisdictions.The main problems with resettlements arise when the trust deed is changed is such a way that beneficiaries are changed or entitlements of those beneficiaries are changed – that normally will trigger the problems with the office of state revenueThanks Cata & Raddles. Your information is appreciated!
Raddles, you obviously know a lot about this sort of thing. Is there a particular wording that you suggest Cameron should look for in the trust deeds to make the situation as workable as possible? I must admit that I hadn't even considered this situation when we had our trust set up. I might go & check the deeds for our trust, too.
Oh, Cameron is in WA (as are we) if that makes any difference.
And can anyone suggest a good solicitor who knows trusts? Preferably in WA.
Thanks a bunch!
E.
Hi there E
you might like to start by looking at your own deed – if it has an index – all the better and look for the provisions which affect the appointment of the trustee – often there will also be provision for the guardian or appointor to regulate who becomes the new trusteeunfortunately there are no correct provisions – it is a matter of making sure it makes senseas I am in QLD – I can't suggest anything that is necessarily correct for WA – each state has slightly different property laws that can impact – and each state has Trustee legislation which can also impact on your Deed – you really need to speak with someone in WAif you have problems in getting a recommendation – speak to your Law Society – as each solicitor normally advises the society of the areas of law they practice in- you need someone who has the background in preparing those deedsraddles wrote:The main problems with resettlements arise when the trust deed is changed is such a way that beneficiaries are changed or entitlements of those beneficiaries are changed – that normally will trigger the problems with the office of state revenueHi Raddles
This would depend on the deed. Some are able to change beneficiaries with a minute entry. In which case the resettlement would be unnecessary and no OSR problems.
I have a tax barrister that I often refer to as a source of info. He calls me when he comes across a problem with the wording for my own enlightenment
As you would know, it's all in the way someone reads (or interprets) the wording of the deed. Some are clear, flexable and easy to use while others are not.It also depends on the ability of the accountant you are using. If the accountant understands the deed it can be used to its potential for a reasonable price.
Hi again
I think the main thing is to get informed advice when you are proposing to make changes discussed aboveI have seen deeds which will allow the trustee to make a decision who is included in the class of general beneficiaries – which can be by way of resolution – also who can be excluded from benefitting under a trust – provided there are no changes to present entitlementsit is also possible to approach the office of state revenue for a ruling (similar to the taxation rulings) if an officer of that department is likely to exercise a discretion adverse to your situation – before any changes are made or any minutes are finalisedVery interesting posts here. I'm learning a lot – thanks!
I've never actually thought about a trust this way before. When we set ours up it was recommended by our accountant. I did a bit of research to satisfy myself that this was a good way to go, then went ahead & did it.
Are there any other big potential issues to be aware of? I might go back & do some 'light reading' of our trust deeds tonight.
Thanks.
E.
Hi again
if you have already been using your trust to purchase properties – it is likely that it has already been vetted by a solicitor and found to be adequate – as the bank would have had their legal department review your documentsome of the issues the banking and finance lawyers look at are the ability of the trust to borrow money or raise finance, to guarantee and indemnify the payment of money and to utilise trust assets as if the trustee was the owner – also the ability to enter into contracts in which the directors are directly interested – if there are any doubts the banker's lawyers will ask for an amending deed to be prepared to accommodate their concerns – which can often delay settlements where the bank will require these documents to be stamped (to avoid any arguments over resettlements) prior to any money being disbursedI don't know how often it comes up – but I have also started to see deeds that require compliance with the requirements of the Foreign Investments Review Board – which regulates how overseas nationals can invest in Australia.Anyway – it is worth checking with your solicitor every so often to ensure your deed continues to comply with current legislation – every time you hear in the Media about proposed changes to trusts or the taxation of trusts – it may be worth considering if your deed needs to be amended. This is particularly the case with superannuation deeds which seem to need to be amended quite regularly to keep up with changes to government policy.I beleive that a resettlement only occurs when the trust is changed in some way. Changing a trustee won't actually change the trust in anyway – beneficial owners of the trust assets will still be the same. If you start adding or substracting beneificaries or classes of beneficiaries, then the ATO will probably deem a new trust to come into existance and treat all assets of the old trust as being sold to the new trust = CGT and Stamp duty problems.
A few years back the ATO put out a Statement of Principles in relation to trust settlements – which is just their interpretation of the law. Here is a quote from
Creation of a new trust – Statement of Principles August 2001
:
A change of trustee does not in itself result in a termination of the trust. If there is merely a change of trustee, the trust property with the accompanying equitable duties are assumed by the new trustee and the trust estate continues unchanged. On the other hand, a change in the trustee or control of the trustee may be an element in arrangements which in their entirety amount to the creation of a new trust."
http://www.ato.gov.au/print.asp?doc=/content/14283.htm
So, Ect., I think your friend needs a new accountant!
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Here are some good articles covering resettlement issues of discretionary trusts:
Family Trust
Resettlement Issueshttp://www.taxlawyers.com.au/Publications/New/resettlement_of_trusts.htm
Trusts – So, where are we, post Commercial Nominees?
http://www.taxlawyers.com.au/Publications/New/Trustacc2.htmTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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