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The Nuts and Bolts of running a Discretionary Trust

Discussion in 'Legal Issues' started by seven, 4th Jul, 2016.

  1. seven

    seven Active Member

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    I have recently been given the role of trustee of a Family Discretionary Trust.

    The previous Trustee used very basic Minutes when making decisions.

    I am wondering if the is a lay mans set of pro forma type forms or a good method of actually running the trust that anyone here could recommend.

    I am trying to establish a legally compliant and efficient way of running this trust - the nuts and bolts of it anyway. I have already established that I need to get 3 Certified copies and put one with the accountant, one in the safe and one as a working document - up until now that has not been done and if these are lost or misplaced can lead to problems.
     
  2. Greyghost

    Greyghost Well-Known Member

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    Deeds:
    Email a PDF to accountant. Or go there with the deed and get them to copy and certify it so they can hold onto a certified copy.

    As for minutes, accountant should prepare each year prior to 30 June. Distribution minute does not necessarily need to be a formal signed minute though, tax planning report, an email or writing on a napkin can constitute.

    As for being trustee, do you mean you are now they appointor?
    Why have you personally been made the trustee?
     
  3. seven

    seven Active Member

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    Hi Greyghost

    Appointor and Trustee are the roles I now have so yes I appointed myself as Trustee.

    The Trust only holds shares so my understanding is that a Corporate Trustee isn't necessary.

    The minutes have had to reflect these changes (Trustee and Appointer) and I have prepared a "Deed Poll" for the Variations of Trustee and Appointer.
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    All you have to do is to read the deed and follow it.
    If you want to do something as trustee, then before you do that read the deed and see if you are allowed to do it. For example say you want the trust to lend money to a beneficiary at 0% - you must read the deed and find out if the trustee can:
    1. lend money
    2. lend money to a beneficiary
    3. lend money with security or without security?
    4. lend on terms that disadvantage the trust
    5. who has to approve the transaction (if anyone) other than the trustee.
    6. documentation needed (the deed may not say anything about this)

    .Accountants should not prepare minutes as these are legal documents - the accountant can tell the trustee the tax outcomes and then it is up to the trustee to prepare minutes. Wording is important because imagine the ATO denies a large deduction - the increased income of the trust would pass according to the trustees resolution.

    Keep in mind any beneficiary can request to see records of the trust. So you are accountable to others. Don't treat the trust as your own. Don't mix trust assets with your personal assets. Don't make frivolous decisions as it is a serious job with special obligations on the trustee. You can reduce your risk by appointing a company as trustee - if you have the power.
     
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  5. seven

    seven Active Member

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    Hi Terry,

    Thanks for your (as usual) insightful advice.

    I was really after 'administrative' or 'book keeping' type of advice.

    Right now the Trust Deed , Minutes, Accounts and so on are kept in a Lever Arch folder with (my minutes anyway) being only single pages in a plastic sleeve.

    It does keep in line with the Deed but I was wondering if I am doing a professional enough job (say if I was audited) with the Nuts and Bolts of the book keeping/decisions.
     
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  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    As long as everything is properly recorded you should be right. Just think if a stranger were to pick up that file could they understand what the trustee has done (and maybe why they did what they did in some cases).
     
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  7. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Provided you carefully followed the deed AND then removed the former trustee using the correct rules. Many deeds may call for the other appointor to end their appointment in a specific way ie by deed, or writing etc. Technically, you cannot appoint yourself as trustee in most deeds I have read. It usually wise to be appointed as appointor AND as trustee in same deed / resolution as if they are done separately it can be argued at different times and perhaps invalid. Bank lawyers will raise this is a loan is applied for.

    Human or Corporate Trustee ?? A human trustee is not clever. It may also require a change to the deed in some instances. Of course after doing this ALL trust assets need to be changed. Even bank account needs to reflect correct trustee. Many banks refuse to accept a human trustee to human trustee change unless by deed. If a corporate trustee was it validly signed according to s127 of the Corporations Act ? This law has a defect allowing mistakes to make a change invalid.

    Minutes are a poor way to document decisions. Trustee records of resolutions are far far smarter. A minute is a record of a meeting where a resolution is a record of a decision that does not require a meeting place etc. What does the deed say about such matters ?
     
    Last edited: 8th Jul, 2016
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  8. seven

    seven Active Member

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    Thanks Paul

    I will start recording resolutions and look into a Corporate Trustee.
    It would be good if there was a short course on how to run a Family Trust with all aspects including bookkeeping and accounting covered.
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    There is a free short course online. I think CPA Australia run it. It is for smsf trustees but most of it applies to non super fund trustees as well.
     
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  10. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Thanks Daniel. The CPA course is this one I think Self-Managed Superannuation Funds

    But there was some more courses listed on Daniel's link. Not sure of the others but I have done the CPA one a few years ago - can't remember much about it though.
     
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