Trustee's Resolution to Exclude a Beneficiary Upon Request

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Trustee's Resolution to exclude a Beneficiary upon request

Use this form to:

✅ A Request from a Beneficiary to be Excluded; as well as

✅ A Resolution of Trustees to Exclude the Beneficiary.

Market-Leading Flexibility + Free Administration Resources

This automated legal document is designed for use with our cutting edge Family / Discretionary Trust Deed which provides the maximum possible flexibility in terms of “streaming” income of different categories (eg, franked dividends, capital gains, etc) to different beneficiaries.

Our cutting-edge Family / Discretionary Trust Deed has been drafted in accordance with the latest guidance laid down by CPA Australia in relation to trust streaming following the pivotal decision of the High Court in Commissioner of Taxation v Phillip Bamford & Ors [2010] HCA 10 and the consequent changes to the tax laws that were introduced in the Tax Laws Amendment (2011 Measures No 5) Act 2011 (Cth).

Important Note:

If you elect to proceed to use this legal document with your own Trust Deed (not ours) without first engaging with us to review your Trust Deed and the particular circumstances of your matter so that you can obtain informed legal + tax advice then you do so at "your own risk".

Every Trust Deed by its very nature is uniquely drafted, which means that no general assumptions can be made.

Therefore every Trust Deed needs to be reviewed to determine whether what is proposed is permitted, and if so, the procedure required to be followed as well as whether the proposed change triggers any liability which ought to be avoided if at all possible.

Legal + Tax Advice are Always Critical when making any change to Trust Arrangements

Proceeding to Exclude a Beneficiary (even if it is upon request) or making any other change to your Trust Arrangements without first obtaining the benefit of legal + tax advice is a foolhardy approach that may end in tears and financial hardship.

This is due to the following list of non-exhaustive risks:

⚖️ Your Trust Deed may not grant the power required to effect the change making it ineffective;

⚖️ Your Trust Deed may grant the power but you may inadvertently fail to follow the prescribed procedure to effect the change making it ineffective;

⚖️ The change may constitute a breach of fiduciary duty to beneficiaries, or for the above or other reasons be ineffective, triggering potential legal claims from the new, existing or removed beneficiaries;

⚖️ The change may be deemed by the ATO (and potentially by a Court should the matter be litigated) to constitute a "resettlement" of the Trust which automatically triggers potentially hefty tax & duty consequences + penalties which will continue to accrue whilst you remain unaware of the liability, and the liability remains unpaid.

Further Reading:

The High Court in FCT v Commercial Nominees of Australia [2001] HCA 33 in dealing with a Super Fund held that although there were substantial amendments to the trust deed, that there was nonetheless a continuance of the trust.

The original trust deed contained a "wide power of amendment".

In justifying this conclusion (in contrast to the position argued by the Commissioner of Taxation) the Court has considered that so long as any amendment of the trust obligations relating to the trust property are made in accordance with any power conferred by the trust instrument (such as a wide power of amendment), exercising that power over the trust property may not result in the resettlement of the trust (see paragraph 56 of the full Federal Court judgement).
That is, by the inclusion of such a power, that change was contemplated by the settlor when making the declaration of trust over the trust property.  If such a power is not included (e.g. no power to add beneficiaries), then the addition of beneficiaries could give rise to a trust resettlement if that change was not contemplated by the settlor.

Subsequenty the Full Federal Court decision in Commissioner of Taxation v Clark [ 2011 ] FCAFC 5 dealt with substantial amendments to a Unit Trust which were similarly not found to constitute "resettlement" of the Unit Trust Deed.

This does not mean that this favorable result would be applicable to all changes to Trust Arrangements.

It should be noted that unit trusts generally will contemplate changes in the identity of its unit holders from time to time, and the mechanisms used in Clark to achieve the end result were largely implemented without changing the terms of the trust deed itself.

For the ATO's most recent position on Trust Resettlements please read Tax Determination TD 2012/21

Income tax: does CGT event E1 or E2 in sections 104-55 or 104-60 of the Income Tax Assessment Act 1997 happen if the terms of a trust are changed pursuant to a valid exercise of a power contained within the trust's constituent document, or varied with the approval of a relevant court?

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General FAQ

What is the maximum life of a Trust in Australia?

Trusts in Australia have a maximum life of 80 years (except in South Australia^)

Any trust that purports or attempts to last for a longer period is void.

An exception exists for Charitable Trusts created with charitable objects or purposes which can endure forever.

Notes: ^ s62. of the Law of Property Act 1936 (SA) may be used by prescribed interested parties to apply to the Court for orders forcing the South Australian Trust to vest within 80 years.

Credits:

This FAQ was written by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

Important Notice:

This FAQ is intended for general interest + information only.

It is not legal advice, nor should it be relied upon or used as such.

We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.

Glossary ➲ Law of Trusts

Appointor / Principal

Is the term used in modern Trust Deeds to describe the person who has the power to appoint and remove the trustee.

Accordingly, the Appointor assumes indirect control over the whole operation of the Trust.

We generally recommend joint Appointors or at least a clear succession should the Appointor die.

If there is no nominated successor, the Appointor’s legal personal representative succeeds as the Appointor.

Where an Appointor is deemed to have lost legal capacity (e.g. which might be a possibility if the Appointor suffers from a mental condition such as dementia) and where an Enduring Power of Attorney is in place, the Attorney succeeds as the Appointor.

ATF

‘As trustee for’.

Beneficiary

Any ascertainable person or group of people can be the beneficiary of a private express trust.

Person includes a legal person (also called a legal entity) such as a corporation, unincorporated association, etc.

Charitable trust

A trust is a charitable trust when it is established for charitable purposes (objects).

“A purpose trust that is directed to exclusively charitable purposes and that exhibits public benefit".

A Charitable Trust may be quite general (for example for the relief of poverty) or highly specific (for example the care of the aged in a specific geographic region).

Charitable Trusts need not have any vesting date, and may exist in perpetuity.

Constructive Trust

Not really a trust.

It is a remedy decreed by the Court to prevent unjust enrichment.

The trustee will have only 1 duty: to transfer the property to the intended beneficiary as determined by the Court.

It is a means to disgorge a wrongdoer of ill-gotten gains.

Corpus of a Trust

Property of the trust. Any presently existing interest in property that can be transferred can be the corpus of a trust.

Cy Pres

Pronounced Sigh Pray. It is a phrase adopted from the French meaning, “as near as possible” to the original intention.

Family / Discretionary Trust

 In Australia, a Discretionary Trust is a common structure to run a business out of because it offers many taxation advantages.

For Example: The flexibility to distribute profit to different beneficiaries (including streaming of dividends to a particular individual/s), the ability to access significant capital gains concessions and stream those capital gains to a particular beneficiary.

Inter Vivos

Between living persons, someone transfers or gives property to another person while both are alive, such as a parent giving money or other property to their children.  

Trusts established during a person’s lifetime are often referred to as being an Inter-Vivos Trust.

Object

A legal term used in trusts law.  

An object of a trust is a beneficiary of that trust.

In Wills where a gift is made to a particular group or class of people, an object means someone from that group.  

For Example: The group might be described in a Will as ‘my children’ or ‘my nieces and nephews’.

Private Express Trust

A fiduciary relationship with respect to property whereby one person, the trustee, holds legal title for the benefit of another, the beneficiary, and which arises out of a manifestation of intent to create it for a legal purpose.

Resulting Trust

A resulting trust is an implied in fact trust and is based upon the presumed intent of the parties.

If a resulting trust is decreed by the court, the resulting trustee will transfer the property to the settlor if the settlor is alive, and if not, to the settlor’s estate, i.e. to the residuary devisees if any, and if none, to the intestate takers (the heirs).

Rule Against Perpetuities

At common law, the modern rule against perpetuities, is that no interest is good unless it must vest, if at all, no later than 21 years after the death of a life in being who is alive at the creation of the interest.

At common law, an interest is void from the outset if it may possibly vest outside the perpetuity period, such question being determined having regard to circumstances existing at the commencement of the period.

It is not possible at common law, to ‘wait and see’ whether the rule is in fact offended by events as they actually turn out.

The common law rule against perpetuities has been modified by legislation in all Australian jurisdictions, except South Australia where the rule has been abolished.

The most significant reforms to the common law in all jurisdictions where legislative intervention has occurred has been the introduction of a ‘wait and see’ provision, and statutory limits preventing any trust from existing for more than 80 years.

Any trust that purports or attempts to last for a longer period of time is void.

The exception to this rule is for Charitable Trusts.

Secret Trust

Generally speaking, a secret trust arises when a testator wishes to keep secret an object within the Will, such as bestowing a benefit to a political cause, or granting a trust to relatives that may be unknown to the wider family.

Secret trusts fall within two general categories: fully-secret and half-secret trusts.

The basic difference between a fully-secret and half-secret trust, is that there is no indication in the terms of the Will that a fully-secret trust exists.

Whereas, a half-secret trust will be mentioned in the Will, but may leave out the identity of the beneficiary, as well as the gift to be bestowed.

Settlor

The person who initiates the formation of the trust by the provision of the Settled Sum (usually a nominal amount). Apart from providing the Settled Sum and executing the Trust Deed, the Settlor takes no further part in the Trust operations.

A Settlor will often be a family friend or a solicitor or an accountant who will not be a beneficiary of the trust.

Note: The settlor of a Discretionary Trust must be an independent person.

Special Disability Trust

A trust which allows parents or other family members to leave assets in trust for an individual which can be used to fund ongoing care, medical expenses, accommodation, and some discretionary expenditure for that person into the future, without affecting their entitlement to a disability support pension.

Spendthrift Trust

A trust where the beneficiary is unable to transfer his/her interest, either voluntarily or involuntarily. He/She cannot sell or give away his/her right to income or corpus, and his/her creditors cannot attached these rights.

Support Trust

A trust where the trustee is required to use only so much of the income or principal as is necessary for the beneficiary's health, support, maintenance and education.

Trustee

A person (or company) appointed to hold property on trust for others, the beneficiaries subject to the terms set out in a will, as a testamentary trust. Executors are often appointed to act as trustees where a trustee role is required following administration of the estate.  However professional advisers or their firms may also be appointed depending on the circumstances.

Testamentary Trust

A trust created by a Will, which only comes into being after the testator passes away.

Testamentary Charitable Trust

A Charitable Trust created by a Will, which only comes into being after the testator passes away.

Testamentary Pet Trust

A trust for the care and support of the testator's pets created by a Will, which only comes into being after the testator passes away.

Totten Trust

Actually a Totten Bank Account [POD]* not common in Australia (used o/seas)

Trust Deed

A legal document that sets out the rules for establishing and operating your trust.

Unit Trust

The trust deed functions in much the same way as the constitution of a company, and units in the unit trust operate in a similar way to shares in a company.

Vesting Day

The Vesting Day is generally 80 years (except in South Australia) from the date of commencement of the Trust.

That is because, as a matter of law, the Trust must terminate or ‘vest’ at a date not later than 80 years after its commencement.

A provision maybe included in the Trust, which enables the Trustee to nominate an earlier Vesting Day.

Why use a Family / Discretionary Trust with a dedicated 'Sole Purpose' Corporate Trustee?

Who can you appoint as a trustee of your Family / Discretionary Trust?

The trustee of your Family / Discretionary Trust may be:

⚖️ One or more individuals; or

⚖️ A dedicated 'Sole Purpose' Pty. Ltd. Corporate Trustee incorporated under the Corporations Act Cth. (2001).

What is a Corporate Trustee?

A Corporate Trustee is normally a private (i.e. proprietary limited) dedicated 'Sole Purpose' Pty. Ltd. company incorporated under the Corporations Act Cth. (2001) with ASIC for the sole purpose of acting as the corporate trustee of your Family / Discretionary Trust.

What is meant by 'Sole Purpose'?

A trustee company, or in other words a Corporate Trustee is:

✅ Normally a private non-trading (that is, it does not deal with the public at large, so it is therefore not exposed to the many possible liabilities which arise when a business trades with the public) company;

✅ Which is incorporated under the Corporations Act Cth. (2001) solely for the purpose of being appointed to act as the sole trustee of a Family / Discretionary Trust.

Please Note: This does not mean that the Family / Discretionary Trust itself cannot deal with the public, it can and very often does trade.

When this happens the Trust is called a Trading Trust.

When the Trust only holds passive investments and does not deal with the public, it is called a Non-Trading Trust.

Why use a Family / Discretionary Trust with Corporate Trustee?

Advantages

The advantages of using a Family / Discretionary Trust with Corporate Trustee include:

✅ Limited Liability:

A Corporate Trustee is a separate legal entity incorporated under the Corporations Act Cth. (2001) and has the benefit of limited liability.

This means that the individual directors will not be held personally liable (excluding exceptional circumstances such as an instance of fraud).

✅ Separation of Assets:

Using a Corporate Trustee automatically ensures that trust assets are kept separate from personal assets as they are held in the company name.

To further strengthen this advantage, it is generally recommended that being the trustee of the trust is the sole purpose of the Corporate Trustee.

If the company also runs a business, such that it is trading with the public, confusion can be created regarding whether it is holding assets in its own name or on behalf of the trust.

✅ Reduction of Land Tax:

The higher the value of the property or properties held in an individual's name within the same state or territory, the more potential land tax is payable.

If each property is instead held in a separate Family / Discretionary Trust with a different Corporate Trustee, you can obtain the benefit of the land tax-free threshold for each property, and if land tax is payable, the lowest possible land tax rate would be applied.

 Simpler Administration:

No additional income tax return will be required for the Corporate Trustee, as it will qualify for non-active status with the ATO.

If there is a need in the future to change the control of the trust, having a Corporate Trustee will save you a lot of time, effort and cost.

In order to change control of the trust, it becomes a simple matter of preparing a share transfer form and/or a resolution to appoint or resign a director with the appropriate form being lodged with ASIC.

For example: Changing control of a Family / Discretionary Trust which owns real estate

When a Family / Discretionary Trust purchases a property, the property is held in the name of each trustee that is listed on the certificate of title "as trustee/trustees" rather than the name of the Family / Discretionary Trust itself.

If individuals are named as trustees, then when a trustee changes, a lawyer is required to be retained to effect the required updates to the certificate/s of title together with any associated mortgage documentation.

When there is a Corporate Trustee incorporated under the Corporations Act Cth. (2001) all that needs to be done is to prepare a share transfer form and/or a resolution to appoint or resign a director with the appropriate Form 484 being lodged with ASIC.

These changes can be made easily and at a nominal cost.  

Even though the shareholders and directors of the trustee company may change, the trustee company will still remain as the sole trustee of the Family / Discretionary Trust.

This means that no change is required to the certificate of title/s or to any associated mortgage documentation.

When might the control of the Family / Discretionary Trust need to be changed?  

Almost all trusts (which in Australia generally have a maximum term of 80 years: refer to this FAQ for more information) will need to effect a change of control of the Family / Discretionary Trust at some point in time.

Examples of when there is a need to change control of the Family / Discretionary Trust include:

⚖️ Your children take over your trust when you pass away;

⚖️ You change accountants/lawyers who have been acting as a professional trustee as you're not happy with their service;

⚖️ You change accountants/lawyers who have been acting as a professional trustee as you relocate within Australia or they close down or sell their business;

⚖️ You may need to change trustee if you move overseas;

⚖️ The death of any individual trustee (See below discussion: a Corporate Trustee incorporated under the Corporations Act Cth. (2001) does not die);

⚖️ Your marriage or relationship comes to an end.

✅ Simple succession: A corporate trustee incorporated under the Corporations Act Cth. (2001) does not cease upon the death of one of its directors.

Whereas if an individual trustee dies (in particular if they are the only remaining trustee) there will be legal costs + complications regarding the continued administration of the trust.

Disadvantages

The main disadvantage involved in using a Corporate Trustee incorporated under the Corporations Act Cth. (2001) with a Family Trust is the up-front + ongoing annual costs.

Incorporating a company incorporated under the Corporations Act Cth. (2001) can be done online, quickly and cost effectively using a service such as eCompanies (circa $550).

All companies have ongoing annual ASIC fees.

If the cost of incorporating and maintaining a dedicated 'Sole Purpose' Corporate Trustee is a prohibitive factor in deciding whether or not to form your Family / Discretionary Trust then you need to seriously consider whether it is worthwhile to form the Family / Discretionary Trust in the first place.

Credits:

This FAQ was created by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.

Important Notice:

This FAQ is intended for general interest + information only.

It is not legal advice, nor should it be relied upon or used as such.

We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.