Not all trusts deeds are created equal. Tax legislation and other laws that impact on trusts are constantly changing and you need to make sure that trust deeds you provide to clients are up to date.
When selecting a trust deed provider you should consider whether their trust deeds deal with the following important issues.
- Does the deed have a definition of income that:
- excludes notional amounts (such as franking credits and Division 7A deemed dividends);
- gives the trustee flexibility to adopt a different concept of distributable income; and
- ensures the trustee has a discretion to determine what receipts and expenses should be treated on revenue or capital account.
- Can the trustee make distributions out of gross income – to preserve franking credits when there is an accounting loss?
- The trust deed should not require trust distributions to be made by 30 June. The ATO has confirmed this is not necessary.
Including an arbitrary 30 June deadline removes any ability to argue that post 30 June distributions may be valid:
- for tax purposes (relying on the BRK decision); or
- for trust law purposes – which may cause practical problems if there is a dispute about whether unpaid UPEs have to be paid.
- It is important the deed requires that unpaid UPEs are held on a sub-trust arrangement – to take advantage of the ATO position on Division 7A (in practice statement PS LA 2010/4).
- The trustee must have power to make beneficiaries ‘specifically entitled’ to capital gains that arise in later financial years (to satisfy the requirements for streaming of capital gains).
- Does the trustee have power to make interim capital distributions from revaluation reserves (having regard to the issues identified in the High Court decision in Fischer v Nemeske)?
- Are there ‘damage control’ provisions to reduce the adverse tax consequences if a trust that has made a family trust election inadvertently distributes outside the family group?
- Can the provisions excluding the settlor from getting a benefit under the trust actually exclude other trusts that are controlled by the clients – because the exclusion is not limited to the settlor and their children?
- Is the trustee excluded as a beneficiary? If not this may trigger duty consequences in Queensland and New South Wales.
The trust deeds supplied by CGW Structures are regularly updated by the tax and trust lawyers at Cooper Grace Ward and contain comprehensive provisions dealing with all of these issues.
For more details on the different types of trust we offer, please click here.
Please contact us if you would like more information about our deeds and services.