When varying a trust deed, it is important to consider the broader duty and tax implications from duty that can arise and the risk of change in beneficiaries from a resettlement.
In a recent technical update, Cooper Grace Ward associate Keeghan Silcock said that the situation will depend on a number of factors. She noted it will be important to consider the jurisdiction in which that discretionary trust owns assets which can trigger the duty.
Furthermore, there needs to be considered on whether those assets are dutiable property for that particular jurisdiction and also whether it is truly a resettlement of the trust.
“When we’re talking about a resettlement of discretionary trust, we’re really talking about whether there has been such a change to that discretionary trust that we’ve effectively created a new trust,” Ms Silcock said.
“The main way that that can occur is if we vary the terms of the existing discretionary trust in a way that’s outside the scope of the variation power.
“Because, effectively, what we’re doing in that circumstance is creating a new trust transferring the assets from trust number one to trust number two so that there is duty on that transfer.”
Potentially, if clients are wanting to make changes to a discretionary trust, Ms Silcock noted they should seek advice first and foremost to make sure that it’s within the scope of the variation power and to avoid having the risk of a resettlement along with the impacts of the duty.
“The other thing for clients to consider is that there can be duty payable on changes to a discretionary trust even where it doesn’t fall within that category of resettlement,” she explained.
“For example, in certain states and territories, a change to a default income or capital beneficiary of discretionary trust can trigger duty.”
