Legal Tip 159: One Person owning one Property in 2 or more Different Capacities

Legal Tip 159: One Person owning one Property in 2 or more Different Capacities




This one is a doozy. Something I have never seen in practice, but it is possible for a person to own the one property in a few different capacities.


They could own it

· Part - both legally and beneficially

· Part - as executor for a deceased estate

· Part - as trustee for a trust


Example

Tom owns a property, 123 smith street as tenants in common with Betty and Nancy in the following proportions:

· Tom 20%

· Betty 40%

· Nancy 40%



Betty dies and appoints Tom to be executor of her estate.

Tom would own his original 20% in his own right and 80% as executor.



What would the title search show?

It would just show:

· Tom 60%

· Nancy 40%



Tom may be able to get the land titles office to show his name twice by making a written request (at least in NSW Trusts - Registrar General's Guidelines)


After that, Tom as the executor would administer the estate and then transfer the property to the beneficiaries under the will of Betty. Let’s say Betty left her share to Tom as trustee for Harry who was a minor

· 20% Tom (remains unchanged)

· 40% Tom as trustee

· 40% Nancy



Next Nancy dies and she appoints Tom as Executor of her estate. Now Tom will own the property on his own, but in 3 different capacities.

· 20% Tom (outright)

· 40% as Trustee for Harry

· 40% as Executor of Nancy’s Estate.



The title would show a single name: Tom


If the Land Titles Office refuses to list Tom’s name 3 times on the title Tom would later, when disposing of a part of the property, need to write another letter to the LTO stating which portion of the property was being sold.


For example Tom might sell his 20% to Jim. The LTO may have Tom as the sole legal owner so it would be unclear which portion of the property Tom is selling – his 20% or 20% of the property he owns on trust for Harry.


Confusing isn’t it!

 

They could also be acting in capacity as trustee for more than one trust.

Land titles are not permitted to show a trust interest against a legal owner and that can also work for taxpayers. eg : Lets assume Trust 1 wants to transfer to Trust 2 and the same person is trustee of each trust. You cant transfer from the present owner to the same present owner. It gets refused. So its not dutiable. Doesnt mean the transfer didnt happen however. The two trusts may well pay and that constitutes settlement and yes a CGT event etc. Just not dutable sometimes. Same can apply with merger and The CPT Custodian case in NSW is a good example. All very complex legal issue sometimes just to get different names of titles etc. (or not)

OSR generally require an apparent purchaser demonstrate their interest at the time title is sought. It can be done later but it does require solid evidence. I have seen trust deeds, financials and tax returns, old presented cheques and all sorts of evidence submitted that support the nature of a trust interest. Some people think financials are just for tax but they can be a very important issue for determining the assets held by a trust. Absence of financials can be met with a skeptical OSR

And definitely an area for a highly experienced property lawyer. Their skills command high hourly rates as a result

 

A trust is not a legal entity, but a relationship.

So if a trustee changes holding property A as trustee for the XYZ trust to that of the ABC trust there is nothing that can be transferred.

To confuse people trusts are treated as separate entities for tax purposes. So for tax purposes this may be considered as if it was a transfer - but it is not, not in law or in equity.

Changing the capacity as trustee from one trust to another is actually a declaration of trust. Stamp duties laws have long recognised this to be a dutiable event. e.g. s 8 Duties act nsw.

 

But sometimes the person confuses capacity. They see themselves as them. Even when they are a legal capacity. Thats the issue. Me isnt always me

 

See also this relevant section of the trustee act for NSW about ceasing to be an executor and holding the property as trustee or as beneficiary

s 11 Trustee Act 1925 (NSW)
TRUSTEE ACT 1925 - SECT 11 Ceasing to be executor

 

Interesting case:

Rakmy Pty Ltd v Commissioner of State Revenue [2017] VSC 237
Supreme Court of Victoria
Croft J
Taxation - appeal concerned change in capacity in which appellant held certain property - appellant originally held land as trustee for a unit trust, and then began holding it as trustee for superannuation fund which owned 100% of units in unit trust at time of change in capacity - whether the transfer from unit trust to superannuation fund involved a ‘change in beneficial ownership of dutiable property' under ss(1)(b)(vi) & 7(4) Duties Act 2000 (Vic) - if transfer involved such change in beneficial ownership, whether transfer exempt from duty under s36B - whether ‘beneficial ownership' and ‘change in beneficial ownership' in ss7(4) expressly included ‘the movement of dutiable property to, from and between trusts' - whether transfer not exempt under s36B because of non-satisfaction of requirement in s36B(1)(d) - held: grounds of appeal failed - transfer was not exempt from duty - appeal dismissed.

See Rakmy Pty Ltd v Commissioner of State Revenue [2017] VSC 237 (12 May 2017)