Are your clients trust deeds squeaky clean?

Are your client’s trust deeds up to date? As many of you would be aware, trust deeds established before 29 June 2011 may lack the necessary provisions to allow the trustee to distribute a wide variety of income according to current tax and accounting principles.

Our lawyers at Morrows Legal Solutions have prepared the below article to explain the importance of reviewing clients’ trust deeds and what changes are required to ensure clients are compliant.

Why should all trust deeds be reviewed?

In response to the Tax Laws Amendment (2011 Measures No. 5) Act 2011 (Cth) (Trust Law Reforms), which came into effect on 29 June 2011, all trust deeds should be reviewed to:

• allow the trustee to stream different types or classes of income of the trust and
• to improve the overall effectiveness of the distribution of income, net income and capital of the trust as contemplated by the Trust Law Reforms.

What changes are needed to your client’s trust deeds?

The changes typically required to a trust deed include, amongst others,

• consideration of whether the terms used in the trust deed comply with current law (for example how the accounting period is expressed),
• whether the definition of income is broad enough to allow the trustee to distribute different types of income, and
• confirming that the trustee is empowered to specifically allocate, characterise and determine different types of income and expenses.

There are also timing obligations that need to be present within the trust deed, which ensure that the trustee can validly exercise their power to determine tax and accounting income for the relevant income year.

How do I implement the changes in the trust deed?

A simple Deed of Variation can process the trust deed changes.

Please note that any amendments made to a trust deed can, in certain circumstances, trigger obligations under agreements with third parties (e.g. mortgage, borrowing documents and other finance agreements). It may be that those third-party agreements require the trustee to provide a copy of the variation or even obtain consent before making any amendments to the trust deed.

Certain trust deed variations can also cause a resettlement, which has significant tax consequences. For this reason, we recommend that a tax professional amends a trust deed.

How can Morrows Legal Solutions Help?

Although you may have updated your client’s deeds a few years ago, this is a friendly reminder to go back and ensure that none have slipped through the cracks, especially for new clients who have come on board with discretionary trust arrangements.

Ann-Maree Ventura and her experienced legal team at Morrows Legal Solutions are happy to support you and your clients on this matter, ensuring all deeds are squeaky clean and up to date and can prepare the necessary paperwork, in the form of a Deed of Variation, if required.