Join Australia's most dynamic and respected property investment community

Legal Tip 6: Bankruptcy and Terms in Trust deeds

Discussion in 'Legal Issues' started by Terry_w, 24th Jun, 2015.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,972
    Location:
    Sydney
  2. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,363
    Location:
    Sydney
    I have seen many unit trusts which give the trustee a right to refuse redemption too. A discretion of sorts for a trust that is not intended to be discretionary. Now setting aside the bankruptcy issues I would have a concern that the trust is not a fixed trust for income tax purposes and the deed may technically fail the SIS requirements for a Reg 13.22 trust. Such a trust - even an existing trust may well have clauses which allow such discretions rather than a absolute right.

    The issue of a right to redeem was subject of a good article in the Tax Institute Taxation In Australia a few months back. Advisers, particularly tax advisers, setting up trusts should be wary of clauses which they haven't read which could later result in a PI claim by an aggrieved spouse or "partner" to a venture which they considered gave them a entitlement which is found to be subject to the whim of a trustee director who then controls the trust. Expensive to resolve through a lawyer and expensive on PI premiums when there is a claim.
     
    Last edited: 24th Jun, 2015
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,972
    Location:
    Sydney
    I think the legislation cited above would possibly cover the trustee's right of redemption issue too.