example of a Discretionary Trust Deed

[Gateway123]

Hi Guys
Been surfing the net and found this example of a Discretionary Trust Deed

www.reckon-docs.com.au/.../Sample Documents/Trust Fund/ Discretionary%20Trust.pdf

How does it look.

I want the Corporate Trustee (basically me)to be able to
1. Change the terms of the deed at any time without having to resettle.
2. Include a class of people that are not named in the deed itself ie freinds that have become closer than family over many years. This does not seem to be mentioned in the deed. Perhaps there is a way to include a wider range of people.

Basically this will be one of the crnerstones to buying and holding property outside of NSW in states that give land tax thresholds to trusts ie (I think, South Australia and QLD). In NSW it looks like an individual is the only entity that can get the threshold. I hate paying Land Tax and would rather pay less of it and pay a strata levy as at least you get something back for it.

Before I seek counsel on this I want to be able to tell a bad deed from a good one. No point in just going to my accountant and getting one of these off the shelf if its not fully modifyable in the future (without resettlement) as the world inevitably changes.

Gateway

 

[Rolf Latham]

2. Include a class of people that are not named in the deed itself ie freinds that have become closer than family over many years. This does not seem to be mentioned in the deed. Perhaps there is a way to include a wider range of people.

my border collie and Cattle dogs qualify as closer than much of my family but they arent blood, related by marriage or a closely held entity

Im not a soli or an accountant, but I think we will struggle with that one.

More interestingly, how does the deed handle divorce etc ........


ta

rolf

 

[Gateway123]

my border collie and Cattle dogs qualify as closer than much of my family but they arent blood, related by marriage or a closely held entity

Im not a soli or an accountant, but I think we will struggle with that one.

More interestingly, how does the deed handle divorce etc ........


ta

rolf

Rolf, (as my only respondent so far)

I am sure many people on this forum actually wonder what a Trust Deed actually looks like......I sure did. I mean, we read about them all the time on Somersoft....but now I know what they actually look like. Now I want to be able to tell a good one from a bad one.

Border Collie and Cattle Dogs and family = no arguement from me there. I have the cremated remains of my blue cattle dog on the mantlepiece as I write this.

In between writing the post and now I have found a site called 'investorone'. I found it from the MGS site today. Both these were new to me today

Perhaps they will be able to supply me with some information. I don't know. It seems a small little club of people who are each recommending that you seek "advice". I have done this as best I can and supplied a link to a document (above).

Rolf.......what is my next step. I have "trust magic" the book (just read it this morning and wish the author was a Sydney based accountant) and want to go ahead. I will see my accountant (nice bloke but does mostly tax returns) maybe he could order one (a Discretionary Trust Deed) through MGS for me?

I am not a sophisticated investor/member of this board yet - but with "information" not just "advice" hopefully I'll get there.

Gateway

 

[Aaron_C]

Why do you want a discretionary trust? To save on land tax?

 

[Gateway123]

Aaron

I don't believe you save on Land Tax with such a trust - but I think you know that.
It's for positively geared properties.

GW

 

[Aaron_C]

Hmm ok well just because you've read the Trust Magic book doesn't mean that trusts are necessarily a good idea. I think lots of residential property investors get too caught up in the hype of asset protection/tax benefits. It's really mostly beneficial for more sophisticated investors and/or commercial properties.

 

[Lofty]

Hi Gateway

'Terry w' is a solicitor who is very knowledgeable regarding Trusts and is in Sydney. You'll find him on this sub forum often. Just look at a couple of other posts and you'll find him.

Cheers, Paul

 

[Terry_w]

Hello

That link didn't work for me.

Its very hard to know what a good trust deed looks like. You will need to know a lot about tax, asset protection, Trust law, the law of Equity in general, property law, stamp duty, land tax, GST, CGT etc etc.

Although I am a solicitor I would not draft my own trust deeds because I do not know enough about tax. I think there would be very few solicitors who would attempt one without using precedents by MGS etc. Just looking at the definition of income is so complex - you have the tax act definition, trust definition, accounting definition etc which may all be different. So if you get the wording wrong in your deed someone who doesn't receive any income could still be up for the payment of the tax.

The people who draft the deeds, or the good ones anyway, have spent years refining them and have sough lots of expensive advice clarifying things over the years. I know MGS do this and I would be confident using their deeds.

But the person who sets it up for you still have to know a lot about trusts too as you need to know who should fill what roles, what back up people to use, how to set up the company, succession of the company, succession of the trust etc. (imagine if you died and your executor took control of your trustee company and divested the trust in their favour before your spouse could take control of the appointor position and sack the trustee.)

The beneficiaries of a trust have to be known with certainty. You could not name a class of 'friends' as this would be too broad. You might be able to get around this by having a class that includes the shareholders of any company in which the major beneficiaries have an interest. So in the future the friends could become a beneficiary by having them become a shareholder of this company.

You cannot change beneficiaries without a resettlement. You may be able to change the terms of the trust without a resettlement, but this is dangerous and you need advice - and it will depend on what you want to change.

Land tax is complex because each state's requirements differ. You need to look into the requirements of each state before proceeding.

 

[Terry_w]

Here is a nice example of CGT streaming provisions
http://www.mooreslegal.com.au/uploadedFiles/Presentation_Topics/CGT_streaming.pdf

In the eg. 1 Chick receives no CG distribution but is assessed on a $100 CG.

 

[devank]

I've been tried to understand the 'trusts' mainly discretionary trust over a year.
Learnt a lot from Terry & Aaron.
Basically I came to the conclusion that I don't need to buy IPs under a trust as I'm not a heavy weight investor. Instead I upgraded my Landlord, building and public liability insurance policies.
However, I'm still going to create a trust and a company on top to manage our small (very small) business.

 

[seven]

Hello

But the person who sets it up for you still have to know a lot about trusts too as you need to know who should fill what roles, what back up people to use, how to set up the company, succession of the company, succession of the trust etc. (imagine if you died and your executor took control of your trustee company and divested the trust in their favour before your spouse could take control of the appointor position and sack the trustee.)


Hi Terry, you hit the nail right on the head...........this is my greatest concern. Will be doing some homewrok next week with regards to this.

The beneficiaries of a trust have to be known with certainty. You could not name a class of 'friends' as this would be too broad. You might be able to get around this by having a class that includes the shareholders of any company in which the major beneficiaries have an interest. So in the future the friends could become a beneficiary by having them become a shareholder of this company.

That is a good way around this potential issue.

You cannot change beneficiaries without a resettlement. You may be able to change the terms of the trust without a resettlement, but this is dangerous and you need advice - and it will depend on what you want to change.

One thing is certain and that is change. I am trying to allow for this.

 

[Terry_w]

Hello

But the person who sets it up for you still have to know a lot about trusts too as you need to know who should fill what roles, what back up people to use, how to set up the company, succession of the company, succession of the trust etc. (imagine if you died and your executor took control of your trustee company and divested the trust in their favour before your spouse could take control of the appointor position and sack the trustee.)


Hi Terry, you hit the nail right on the head...........this is my greatest concern. Will be doing some homewrok next week with regards to this.

The beneficiaries of a trust have to be known with certainty. You could not name a class of 'friends' as this would be too broad. You might be able to get around this by having a class that includes the shareholders of any company in which the major beneficiaries have an interest. So in the future the friends could become a beneficiary by having them become a shareholder of this company.

That is a good way around this potential issue.

You cannot change beneficiaries without a resettlement. You may be able to change the terms of the trust without a resettlement, but this is dangerous and you need advice - and it will depend on what you want to change.

One thing is certain and that is change. I am trying to allow for this.

The trust deed can stipulate who the appointor will be on your death. You should probably have 2 back up appointors.

The trustee is hired and fired by the appointor so the appointor role is paramount in controlling the trust. But the trustee succession is also important.

If the trustee is a company you will probably be the director of the company and shareholder. It is usually the shareholders that decide who the director is. But when a single member company director dies there is provision under the corporations act for the member's legal personal representative LPR to take the role of director until probate goes through and the shares are passed on. Probate (or administration) can take many months. Probably will take at least 2 months because of the requirement to advertise the death and distribution etc.

Therefore a LPR can potentially take control of the trust during this time. The appointor may not get around to changing the trustee. So the LPR will control the trust and could wind it up or make distributions to themselves - all legal.

I have seen this happen. A son was backup appointor of the family trust. The dad died and the son did not know he was the appointor. The family solicitor and accountant took control of the trust for a number of years, benefiting themselves, before the son took control and replaced the trustee.

 

[seven]

The trust deed can stipulate who the appointor will be on your death. You should probably have 2 back up appointors.

The trustee is hired and fired by the appointor so the appointor role is paramount in controlling the trust. But the trustee succession is also important.

If the trustee is a company you will probably be the director of the company and shareholder. It is usually the shareholders that decide who the director is. But when a single member company director dies there is provision under the corporations act for the member's legal personal representative LPR to take the role of director until probate goes through and the shares are passed on. Probate (or administration) can take many months. Probably will take at least 2 months because of the requirement to advertise the death and distribution etc.

Therefore a LPR can potentially take control of the trust during this time. The appointor may not get around to changing the trustee. So the LPR will control the trust and could wind it up or make distributions to themselves - all legal.

I have seen this happen. A son was backup appointor of the family trust. The dad died and the son did not know he was the appointor. The family solicitor and accountant took control of the trust for a number of years, benefiting themselves, before the son took control and replaced the trustee.

Hi Terry
So how does one safeguard against this happening?

In your example doesn't the lawyer and accoountant have some sort of duty (fiduciary?) to the new beneficiaries? Couldn't a complaint have been made to their professional bodies. That is why we use a trust in the first place (asset protection).

seven

 

[alexlee]

Hi Terry
So how does one safeguard against this happening?

In your example doesn't the lawyer and accoountant have some sort of duty (fiduciary?) to the new beneficiaries? Couldn't a complaint have been made to their professional bodies. That is why we use a trust in the first place (asset protection).

seven

Asset protection is protection against creditors, not improper actions by lawyers and accountants. Complaints can be made and people sued, but that would take time and money, and there's no guarantee of results. For example, they could pay themselves lots of fees for investment advice, etc which might be perfectly legal. Prevention would be better.

Terry's example seems to be mainly due a lack of communication. When the will was made, the father could simply have told the son 'this is what happens when I die and here are your duties, powers and responsibilities', given the son a copy of the will and made sure the son has independent legal advice.

 

[Terry_w]

Hi Terry
So how does one safeguard against this happening?

In your example doesn't the lawyer and accoountant have some sort of duty (fiduciary?) to the new beneficiaries? Couldn't a complaint have been made to their professional bodies. That is why we use a trust in the first place (asset protection).

seven

You need to tell the back up appointors that they will take over this role when you die. Explain to them the importance of it and what can happen.

If someone else takes over they can still benefit themselves without doing anything unlawful.

A trustee has a duty to consider all potential beneficiaries but no duty to distribute to any one beneficiary - otherwise the the trust would not be discretionary.

 

[Terry_w]

I should add this..

You are at risk if you are the only shareholder and director of the trustee company. This is because once you are dead you are not in full control!

An unexpected example may be you appoint your brother as executor of your estate, but he dies a week after you do. If this happens the executor of his estate could become the executor of your estate too. This could be his ex-wife because he didn't change his will for the past 10 years. She could control the trustee, albeit temporarily, until probate is granted.

Anyway a way around this is to hold the shares of the trustee company in another trust. Control can easily be passed without the need for probate. Another possibility is to not be the sole shareholder of the trustee company. Have others hold some shares as well - and hope you all don't die together. (A good asset protections strategy is to never fly on the same plane, or eat at the same restaurant). When you die the shareholders elect a new director and friendly people control the trustee.

 

[seven]

I should add this..

You are at risk if you are the only shareholder and director of the trustee company. This is because once you are dead you are not in full control!

An unexpected example may be you appoint your brother as executor of your estate, but he dies a week after you do. If this happens the executor of his estate could become the executor of your estate too. This could be his ex-wife because he didn't change his will for the past 10 years. She could control the trustee, albeit temporarily, until probate is granted.

Anyway a way around this is to hold the shares of the trustee company in another trust. Control can easily be passed without the need for probate. Another possibility is to not be the sole shareholder of the trustee company. Have others hold some shares as well - and hope you all don't die together. (A good asset protections strategy is to never fly on the same plane, or eat at the same restaurant). When you die the shareholders elect a new director and friendly people control the trustee.

I think not being the sole shareholder will be the way I will go. Mum and brother could also be shareholders.
I havn't even set up the first trust yet, so setting up a second to hold shares right now seems twice as hard.
As for hoping we all don't die together - well we are a small family so if that happens and the plane crashes - problem solved "walah".

As for my brother dying and not changing his will for 10 years - that would be just like him........only I don't think he even has a will. I'm not about too bring this up with him either.

I have really enjoyed this thread so far....thanks to everyone who has posted.