Common Problems with Trust Deeds
Increasingly, we are having to fix problems with trust deeds that come across our desk, due to a range of issues. Whilst these problems may not immediately jump out at you, they rear their heads when changes are made, and especially if the Deed needs to be registered with the Titles Office.
To illustrate, here are two common problems we have dealt with in the last month:
No Discharge when Changing from Two Trustees to One
It is not uncommon for changes to be made to a trust to go from two trustees to one trustee.
Under the Trusts Act 1973 (Qld), if there were originally two trustees appointed of a trust, then those trustees are not generally discharged (released from their obligations and responsibility) if the trust goes to having a sole trustee – unless there is an express power in the Deed. This will be picked up by asset holders and the Titles Office and requisitioned, causing delays, additional costs and an amendment to the
Trust Deed.
This limitation applies far beyond just your standard discretionary trusts.
For example, despite the requirements for who can be trustee of a compliant self managed superannuation fund (“SMSF”) under the Superannuation Industry (Supervision) Act 1993 (Cth), a SMSF is still a trust and so the Trusts Act applies. Therefore, where there is a change from two (or more) individual trustees to a single corporate trustee of an SMSF, the individuals will not be discharged.
We were recently called in to assist to fix a requisition which occurred in this respect – where there had been a change of trustee from two individuals of a SMSF to a corporate trustee. The Deed was prepared by a large and reputable online Deed provider (backed by a top tier law firm in Sydney) and did not contain a ‘discharge clause’.
When the client originally contacted the provider, they said “this comes up from time to time but we can fix it for $550”… they wanted to charge the client $550 to write a letter (not even to fix the actual Deed) caused by a Deed that they produced which did not have the necessary clause!
We were able to fix the problem by writing to the Titles Office and completed an update to the SMSF Deed (for cheaper than the producer was willing to offer just for a letter).
Rest assured that all the Discretionary Trust Deeds and SMSF Trust Deeds we produce contain the necessary discharge clause.
No Stamping
It is important to consider stamp (/transfer) duty in a wide number of circumstances, including changes to a trust. A common one that you will encounter is a change of trustee.
When we are asked to change a trustee of a trust, we get a copy of the trust deed and all subsequent amending deeds. It is surprising just how often we see earlier deeds changing the trustee without any stamping notation.
A change of trustee is a dutiable event in Queensland. However, there is an exemption that applies if stamp duty has been paid on all dutiable trust acquisitions or trust surrenders to date and the transaction does not change the rights or interests of a beneficiary of the trust or terminate the trust.
To claim the exemption, certain documents (OSR Form 2.2 and statutory declaration) need to be prepared and signed and then a self-assessor (e.g. registered law firm) or the Office of State Revenue need to attend to the stamping.
Where clients or accountants order the change of trustee deeds online from a mass provider, the provider generally does not follow through the whole process and attend to stamping of the Deed (as we do).
Accordingly, the failure to stamp Trust amendments appropriately can cause major problems later, and costs the client additional money, if picked up by the Titles Office and asset holders. Our approach is to do it all at the same time.
Changes to the beneficiaries of a trust are far more complicated and there can be stamp duty payable. Failure to consider stamp duty on a change of beneficiaries can result in not only the stamp duty being payable, but also interest and penalties.
Conclusion
As you can see, whilst changing a trust deed or trustee may seem straight forward, there are technical problems which can arise. Accordingly, it is essential to ensure that you have a well drafted trust deed (suited to Queensland law) and follow through the process (including stamping) to make sure there are no loose ends which could cause additional costs, time and stress to your clients later.
For more information please contact us.