(NSW) Change of Trustee of a Trust - Duty becomes due?

In NSW, say you have three personal trustees of a discretionary trust or a unit trust which holds a property and later one person were to pass away or resign from being a trustee therefore only two trustees will continue, is there some sort of duty (or stamp duty) that will be due? I remember reading something like this before (possibly for a discretionary trust only?). I think it was if any of those trustees are beneficiaries or potential beneficiaries then this could apply.

 

Could be if the NSW trustee can become a beneficiary.
S55 duties act from memory

 

This is one of those prevention is better than looking for a cure issues. Dont let it get to that in the first place.

 

I think it would only apply to discretionary trusts because only that type of trust has beneficiaries.

Looks like it's Section 54(3) of the Duties Act (NSW) 1997: Beware stamp duty on Death or Change of Trustee - Business & Property Lawyers

According to the link above it says:

What can be done to avoid this expensive and unnecessary stamp duty?

The solution is to appoint a company controlled by Mrs Smith and/or Mrs Smith and her son (if that is desired) to be the new trustee in place of both the deceased Mr Smith and Mrs Smith. Provided the company is not and cannot be a beneficiary of the trust and this is embedded in the trust deed, then the stamp duty is only $50 when the unit is transferred to the company as the new trustee.

What would happen if there is a potential for the new company to be a beneficiary? Have the trust deed amended? But would that end up making stamp duty payable anyway?

 

Again, prevention. Have a $2 company as trustee from day1. Make sure appointors of the trust and directors and shareholders of the trustee company have wills with specific clauses in place.

 

It applies to unit trusts too. unit holders are beneficiaries.

 

You will need to read the deed and see if the new trustee can be a beneficiary and then seek legal advice on an amendment if need be. excluding the trustee may not a resettlement for duty purposes.

 

NSW Duties Act does contain a avoidance rule where a change of trustee is also used as a step towards a change of beneficial owner.

 

Using the OP's example of 3 people, say there's Homer, Marge and Bart (at adult age) as personal trustees of a discretionary trust holding a property. All 3 are named beneficiaries in the trust deed. One day in the future Homer passes away. Marge and Bart will continue as trustees. Since they are already named beneficiaries does this mean that no stamp duty be due because they are not becoming new beneficiaries as they are already named beneficiaries?

 

If you read s54 you'll find it says something about continuing trusts too. You will have to read the section and seek legal advice

 

Most trust deeds allow for primary named beneficiaries that act as a reference point to other clauses which then allow other potential beneficiary who may always be unnamed who are related to a primary named beneficiary. (eg Barts wife, Barts kids, Barts Trust and Barts company)

A change of trustee should almost never act sas a reason to vary the deed to remove a former beneficiary (although it could be done) and the fact Homer is now deceased means he can no longer receive trust income as he is deceased. There is no need to amend the deed for that. In the case of Marge and Bart (and Maggie who may be unnamed) there is no need to make any changes. Homers death may impact any family trust election and impact the tax position of the trust and so tax advice may be required. The tax advice could lead to legal advice on amending the trust deed in some cases. Especially if Marge seeks to remarry later

 

So once Homer is deceased there's no way any type of discretionary trust can distribute to Homer's deceased estate for the next year or two before probate is all settled?

Another scenario: Instead of personal trustees Homer, Marge and Bart becomes directors of Mr. Plough Pty Ltd and that company is trustee of a discretionary trust which goes out and acquires a property. A few years later Homer passes away, therefore Homer can't be a director and shareholder of the trustee company anymore, only Marge and Bart. As the trustee company stays the same there's no stamp duty, CGT or other taxes/duties due at this point, correct?

So what's stopping the Simpson family selling that property to Marge's sisters Patty & Selma but instead of the traditional way, Patty & Selma become directors & shareholders of Mr. Plough while the Simpson family resigns? Patty & Selma would already be unnamed beneficiaries of the trust as sisters of Marge. In this way wouldn't all parties involved save on a number of taxes and duties?

 

The deceased estate could be a beneficiary of the trust.

Changing structure of a trustee company won't be a cgt event or trigger stamp duty in nsw. It might in Qld in some cases - including trusts of other jurisdictions with property in Qld.

Nothing to stop passing control to other family members but if there is consideration given it could be taxable.

 

A deceased estate may be a problem for tax purposes and Part IVA could also apply. s99A imposes some concern many may not consider. The testamentary nature of the distribution needs consideration. Subsection 99A(3) of the Income Tax Assessment Act 1936 gives the Commissioner of Taxation the power to deny access to the concessional tax rates available under section 99 of the Income Tax Assessment Act 1936 which apply to a TT entitlement where the Commissioner of Taxation believes benefits have been conferred on the trust estate for the purpose of obtaining the concessional tax rates. By applying subsection 99A(3), the full amount of the income derived by the trust could potentially be exposed to penalty tax rates under section 99A.

The concessional rates are conferred by The Tax Rates Act 1986 re

• The rate of tax payable by the trustee of a deceased estate on undistributed income during the first 3 years of the administration of the estate is based on the ordinary marginal income tax rates available to individuals (with availability of the tax free threshold).
• The rate of tax payable by the trustee of a deceased estate on undistributed income after the first 3 years of administration of the estate is based on the ordinary marginal income tax rates of an individual taxpayer (without availability of the tax free threshold).
• The rate of tax payable by the trustee of a testamentary trust on undistributed income is based on the ordinary marginal income tax rates of an individual taxpayer (without availability of the tax free threshold).

A resolution not supported by a will may pose some concern. If Homer conferred a entitlement to disc trust income in his will it could be testamentary in nature. However how can a disc beneficiary call for income ? Complex and costly legal-tax advice would be required. The 3 year estate rule also limits a fixed entitlement

Probate is the legal process of seeking court approval for the excecutor to commence to administer the deceased estate.

 

Corpus could also be distributed, not just income.

 

So it wasnt a loan and now its being repaid ? Loads of estate planning issues here. A deceased estate cant call for trust proceeds. The trustee may refuse it. Succession regarding trustee powers would be a major issue. Is there also a guardian provision ? And it may be incapable of legal claim... Where if the trust had borrowed the funds from the deceased it may be an estate asset and open some entitlement opportunities for income and capital.

This is a outcome of gifting v loaning. And why legal advice is important rather than an accountant suggesting not to do a loan but to add to corpus.

 

No loans involved