Trustee change

Discussion in 'Legal Issues' started by wayne, 29th Mar, 2017.

Join Australia's most dynamic and respected property investment community
Tags:
  1. wayne

    wayne Well-Known Member

    Joined:
    4th Jun, 2016
    Posts:
    73
    Location:
    ACT
    Hi, can anyone recommend the best way to change the trustee of a discretionary trust. Currently we have a corporate trustee and wish to change to a natural person.
    Cheers
     
  2. Ross Forrester

    Ross Forrester Well-Known Member

    Joined:
    30th Oct, 2016
    Posts:
    2,085
    Location:
    Perth, Western Australia
    Just get a lawyer to do an amendment to your trust deed appointing and resigning trustees.

    Should not be too hard.
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    The trust deed wouldn't need amending as the deed isn't changing.

    The trustee could only be changed by the person with the relevant power. This may be the appointment or it may be the existing trustee. You would need to read the deed and see how this power can be exercised. Sometimes approvals are needed or there are restrictions imposed.

    What assets does the trustee own? These will need to be transferred to the new trustee. If real property then stamp duty needs to be considered esp in NSW.

    Are there loans? If so new applications will need to be made with lenders as the legal owner of assets is changing.

    It will be a pain in the arse if there is property involved
     
    Perthguy likes this.
  4. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    Terry I agree with your comment about the deed not changing. However in practice many banks struggle unless they see a deed of amendment since the deed schedule will show ABC Pty Ltd as trustee but Mr Jones may now be trustee. A deed of change of trustee is often a key request for a property, bank accounts or other real asset change of title. A portfolio of shares is a bigger pain and more costly too. And it will become a cost that gets repeated in the future too.

    There are many issues to consider when changing trustee and making the change without legal advice can be risky. The legal advice should also address some contractual and other issues eg Human trustee cant make a contract with himself eg no loans !! Also personal liablity issues and potential for merger concerns with some trust arrangements.

    In QLD there is also a complication for property and its not straight forward. Changing to a human trustee can be a stamp duty trigger. Again, reason that you should get legal advice.
     
    Ross Forrester likes this.
  5. thesuperman

    thesuperman Well-Known Member

    Joined:
    26th Jun, 2015
    Posts:
    460
    Location:
    Australia
    So in NSW for real property if personal trustees change to a corporate trustee where those personal trustees are all directors of that company, even though the property is held in the same trust stamp duty would be liable?

    And what about if there are personal trustees and one party dies, stamp duty would be liable too as that party would need to be removed as a trustee?
     
  6. 2935

    2935 Well-Known Member

    Joined:
    5th Sep, 2015
    Posts:
    73
    Location:
    Sydney

    I provided my Bank with a "Deed Poll" which is basically just a sort of proclamation when I had to change the Trustee. It kept the bank happy abut was not really necessary due to how the Trust was worded.
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    Yes full duty could be triggered if this results in a change of beneficiaries. This would be the case if the trustee was named as a beneficiary.
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
  9. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    27,101
    Location:
    Sydney or NSW or Australia
    @Terry_w - no one mentioned changing the beneficiaries. Why would stamp duty be payable if the trustee changed? I take the point that why would you change from a corporate trustee to a natural person.

    Can you just change the directors of the corporate trustee instead?
     
  10. thesuperman

    thesuperman Well-Known Member

    Joined:
    26th Jun, 2015
    Posts:
    460
    Location:
    Australia
    Do you mean a change of listed named beneficiary? Because if they are removed they will still be an unlisted beneficiary as per the standard "all family members" clause.

    Would stamp duty still be triggered if you remove a named beneficiary (they would still be a beneficiary as per the father, mother, relatives clause of the deed) while they are still alive and they still remain as a personal trustee? If not, couldn't you just do this now then when they pass away in the future, just remove them as a personal trustee then no stamp duty would be liable in NSW?
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    See the legislation. Sometimes the trustee is listed as a beneficiary so a change of trustee can result in a change of beneficiaries
     
    Scott No Mates likes this.
  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    Change of beneficiaries could result in a resettlement for both duty and cgt.

    I would suggest a private ruling before changing things. Tax is more straight forward but duty is tricky.
     
  13. thesuperman

    thesuperman Well-Known Member

    Joined:
    26th Jun, 2015
    Posts:
    460
    Location:
    Australia
    So that means a private ruling from both the Office of State Revenue for stamp duty and the ATO for the CGT?

    Lots of people die all the time who are beneficiaries of trusts so lots of their family members must be getting caught out with getting stuck with stamp duty and CGT.

    What about if the personal trustees were to change to a corporate trustee with all personal trustees becoming directors (or only one single director)? Would that trigger stamp duty and CGT? Named beneficiaries would still stay the same. But down the track if a beneficiary dies wouldn't the same problem arise anyway as a beneficiary would need to be removed on death?
     
    Last edited: 13th Apr, 2017
  14. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    The legislation doesn't mention anything about directors so this would be irrelevant (for NSW). It could be an issue in other states such as QLD or WA though.

    You should seek specific legal advice on both the stamp duty and CGT consequences of changing trustees.

    Beneficiaries don't get removed at death - they remain beneficiaries and the trustee could even distribute to them in the initial years.
     
  15. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    I agree Terry - Often this issue is only detected after a accountant suggests a change !!. Legal advice is VERY important. Its even worse in QLD. A common accountant one is this - Unit trust owns property. Disc Trust is a a unitholder. Client says - Why cant we save money and have a single trustee company . Accountant says - I agree. Now ABC Pty Ltd is trustee for the unit trust AND the unitholder. Unit trust merger occurs. Duty applies.

    Generally speaking a revocation by a beneficiary or a change that removes a beneficiary wont resettle a trust. But using that sentence provides a good example of a problem - Can a beneficiary revoke or can one be excluded ? If so what are the rules ? Is a deed required ? All reasons to get legal advice.A land rich entity may have a more stringent problem.

    For continuity purposes a corporate trustee is generally preferred. Changes to the Directors normally wont attract a concern BUT it can in a land rich entity especially where a change of trustee control occurs. Adding or changing beneficiaries to a different family may pose a problem. Human trustees can result in a host of problems. Its not uncommon to find some 1950 and 1960s trusts with parties named who no longer are alive and you need a family tree to determine who even has power to address who the beneficiaries are.
     
  16. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    Generally start with the OSR ruling BEFORE making changes so its agreed in advance. The legal advice should also address CGT.

    Technically beneficiaries do change after death. Their deceased estate is not them.
     
    Last edited: 13th Apr, 2017
  17. thesuperman

    thesuperman Well-Known Member

    Joined:
    26th Jun, 2015
    Posts:
    460
    Location:
    Australia
    Wow. For how many years can you distribute to a dead person? How do dead people submit tax returns for income earned? :eek:
     
  18. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    A dead person generally submits tax returns for up to 3 years after their death. The executor or administrator must submit these on behalf of the estate. Once the estate is wound up then a trustee begins to hold assets unless all distributed.
     
  19. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    In the year a person dies they can have TWO tax returns. One up to the date of death and another for the estate for the period after death. EACH return gets a tax free threshold and each can receive a possible distribution

    Deceased estate tax can have a lot of tax planning benefits. Important to involve a tax adviser even prior to death if possible (we do a bit of aged care).