The regulator said advisers should consider reviewing their clients’ trust deeds and any amendments to ensure trustees are making decisions consistent with the terms of their deeds. They should also check that the trust hasn’t vested, as this may impact distribution decisions.
As part of reviewing the trust deed, advisers should be looking at who the intended beneficiaries are and their entitlement to income and capital under the trust deed. If the trustee has made a family trust election or interposed entity election, this may have a tax impact on distribution decisions.
Additionally, advisers, according to the ATO, should support their clients in notifying beneficiaries of their entitlements to allow beneficiaries to correctly report distributions in their tax returns, preventing trust income from being omitted.
Another thing to consider is the requirements under the deed governing the making of trustee resolutions, including the need to have the resolution in writing and the timing of when it’s required to be made. Resolutions need to be made by the end of the income year.
Finally, the ATO said advisers should be determining whether the trustee has capital gains or franked distributions they’d like to stream to beneficiaries. This should include confirming the trust deed doesn’t prevent this and that trustees have complied with the legislative requirements relating to streaming these amounts.
The regulator warned that compliance activities often identify mistakes made by trustees that are the result of not following trust deeds or not checking family trust elections.
