Hdt - 10$

[NickM]

Fair comment GP
Gordon, I think that the issue is was the trust validated with $10 when it was created and settled

Where that $10 is right now will only be of any relevance if it can be proven that the settlement did not occur. ( and that the trust has not bought property correctly etc etc etc)

Nick M

 

[austini]

Hi Nick,

Gordon, I think that the issue is was the trust validated with $10 when it was created and settled

Yes, I was getting a little off the original topic and returning attention to an unanswered question I raised earlier in the thread

My reason for raising it is that, providing original settlement is valid, one could remove the settled sum from the trust's bank account and attach it to their deed if they were concerned about bank fees and the possibility of accidentally overdrawing the account etc etc. It was more out of curiousity than anything. However it may provide comfort to some to know that the option does exist to do this.

As for me I will leave things as is and focus on improving my beer drinking skills.

Cheers - Gordon

 

[Andrew_A]

If the S Sum is in the bank account and it drops below $10 at any stage then the trust becomes invalid.

Thanks for that NickM. In that case I would be silly to deposit the cheque I have (written out to XYZ trust from my settlor) as I would always have to be concerned about the balance of the account (I like keeping minimum balances in low performing bank accounts)

Chris Battens approach is to settle the deed by pinning $10 to the deed when he signs it. A witness is present. He then holds that $10 on behalf of the trust. If the trust is ever challenged then he and a witness were present when the deed of trust was created.

As I'm dealing interstate with my accountant then I wonder what it the appropriate way for me to do this? Do I just send $10 back with my signed documents? Or should I be going to the trouble of getting a JP/witness to sign as the actual stapling is done with me present?

Actually pinning the cash to the deed is very common and very acceptable. This would be preferred over using a bank account or a cheque.

Check your balance sheets. You must ensure that your accountant records the settled sum in the equity section of the trust funds. If this is not there, regardless of where the $10 is located it could cause you grief. Financial Statements are generally the first thing called for in a legal matter.

I follow Battens approach and would no hesitation to appear in court or prepare a stat dec if required to prove the creation of the trust.

Paying stamp duty in NSW also provides another factor in proving a trust is valid. Even though it is not practice in other states many in the legal fraternity do not get their deeds stamped in NSW as they see it as just a grab for revenue by the NSW Govt.

If the trust prepares financial statements, tax returns, pays land tax and prepares minutes each year and follows the rules of the deed then proving the trust is invalid from the beginning would be difficult. I have seen some cases where a deed is stamped at OSR 3-4 years after its creation. Late fees are paid and on it goes.

Can anybody show me some cases of where the settled sum was proven invalid ? I havent come across any.

Have fun
Nick M

I guess the first years tax return would be the most important document with regards to showing the intent of the $10? I will just have an empty bank account (or minimum balance of $1) for the trust until I'm in a position to purchase it's first asset (house or shares). I have more questions now than when I started, but I'm still glad I asked this question

 

[wbthom]

Bill,
Can you please post some documetation as I know a LOT of people on this forum hold their assets in a trust structure and would be very grateful if it clears up a few mis-conceptions as I for one have never seen this stipulation, this is not to say it isn't correct. Also, I would be very surprised about the stapling the settled sum to the deed point as this is how its been done for centuries.
Cheers,
JIM

Jim,

I am in the process of trying to find the case law information this was based on. I first heard this from Ed Burton an adviser who has great expertise on trusts - he mentioned that under an old English common law ruling for a trust to be properly settled the original settlement sum (asset) had to vested inside 28 days. He did make make mention of the reasons at one stage but I fear I was not paying total attention

On the question of stapling the settlement sum to the trust deed - This question is more about proving the provenance of the vested settlement sum. In historical times it was an easily verifiable physical asset eg a gold coin or a property title attached to the trust deed but modern paper money is relatively anonymous and more open to fraud. I suspect if you registered the serial number of the note as mentioned by Dale or as NickM suggested provided a witness that this was the actual settlement sum then that would be sufficient proof in a court (Although as trusts can live longer than people I don't know what would happen if your witness died) Banking a dated cheque (if you can prove it from statements) seems to be the modern equivalent. Again as NickM mentioned Govt stamp duty dates would appear to be another modern way a trust can be validated. Trust law seems to have many confusing aspects and I for one feel safest with the tightest most rigorous proof of a valid, properly settled trust.

Bill

 

[austini]

Gasp, I just had a horrible thought - what if the $10 note turned out to be conterfeit

Sorry - couldn't resist being stupid this early in the morning

Cheers - Gordon

 

[NigelW]

Hi Way Solid,

From an asset protection point of view stapling the settlement sum to the deed is very poor because you have no way of legally "proving" when the sum was settled. Not only is it necessary to bank it but for a trust to be adequately "settled" the settlement sum MUSTbe the first entry in the bank account and MUST be banked within 28 days of the date on the trust deed. It's OK to change banks later etc but you also need to keep a copy of the original bank entries to later "prove" that the trust was properly settled - if you don't and are ever sued then a good anti- trust lawer can tear your trust apart - negating your asset protection.

Bill

Hi Bill

With respect I disagree. To create a trust via a "settlement" (which is the way it is usually done in the circumstances we're talking about) you need:

1) a trustee
2) beneficiaries
3) some form of trust property
4) trust obligations.

Here the $10 forms item 3. It could however be Great-Aunty Nora's antique clock that is settled ie gifted to the trustee to form the initial property subject to the obligations which comprise the trust rather than cash. (Bear in mind Great Aunty Nora must be excluded as a beneficiary...) How are you gonna "bank" the clock?

What "proof" are bank statements? They're are really not much better proof than an orginal deed of settlement signed by the settlor which has a $10 note attached to it. Even if the $10 wasn't stapled to it that's not proof the $10 wasn't actually given to the trustee.

While it IS important that the $10 etc is ACTUALLY gifted to and received and held by the trustee, there's no need for it to be banked. Nor any time limit imposed upon banking the $.

I don't like cheques because they can be dishonoured or go stale. (If the settlement sum is a cheque you MUST bank it, don't staple it to the trust deed!!!)

Cheers
N.

 

[NigelW]

Are you sure you guys aren't all closet lawyers? or maybe we're all just A*** Retentive!

NickM: You have all brought up some very valid points.

i have had numerous discussions with lawyers and practitioners in relation to this matter over the years.

I am unaware of any cases that state that the settled sum must be banked within 28 days. I understand that some advisers have stated this in their instructions and as a result clients are led to believe that it is law.

I am happy to be corrected on this point if any case law exists.

Agree. I suspect that practitioners are telling people that to make sure there's actually a sum of money settled on the trust, ie you could just say: "oh yeah sure, Joe gave my Trustee $10" when in fact you have a hard time getting Joe to buy you a beer...

If the S Sum is in the bank account and it drops below $10 at any stage then the trust becomes invalid.

With respect I disagree. If the settled sum was $1000 and it dropped to $999 does that make the trust invalid? So long as there is some property even 10 cents (which is probably all you'll have left after bank fees!) which is subject to the trust obligation then the trust continues to exist (until it vests in 80 yrs time).

If a cheque is stapled to the deed and that account is closed or drops below $10 then again the trust is invalid.

I disagree -

Section 89 Cheques Act 1986 (Cwlth) permits (subject to some exceptions) a financial institution to refuse payment of a "stale cheque".

Section 3(5) of the Cheques Act says:

"Where, at any time, a cheque appears on its face to have been drawn more than 15 months before that time, the cheque is, at that time, a stale cheque."

The bank may not refuse to pay but it MAY do so...where does this leave you for trust property? Maybe a chose in action against the drawer of the cheque...don't go there...get cash! and do NOT staple cheque to trust deed. If the trustee gets a cheque bank that sucker ASAP!

Chris Battens approach is to settle the deed by pinning $10 to the deed when he signs it. A witness is present. He then holds that $10 on behalf of the trust. If the trust is ever challenged then he and a witness were present when the deed of trust was created.

Actually pinning the cash to the deed is very common and very acceptable. This would be preferred over using a bank account or a cheque.

Check your balance sheets. You must ensure that your accountant records the settled sum in the equity section of the trust funds. If this is not there, regardless of where the $10 is located it could cause you grief. Financial Statements are generally the first thing called for in a legal matter.

I follow Battens approach and would no hesitation to appear in court or prepare a stat dec if required to prove the creation of the trust.

Paying stamp duty in NSW also provides another factor in proving a trust is valid. Even though it is not practice in other states many in the legal fraternity do not get their deeds stamped in NSW as they see it as just a grab for revenue by the NSW Govt.

If the trust prepares financial statements, tax returns, pays land tax and prepares minutes each year and follows the rules of the deed then proving the trust is invalid from the beginning would be difficult. I have seen some cases where a deed is stamped at OSR 3-4 years after its creation. Late fees are paid and on it goes.

Can anybody show me some cases of where the settled sum was proven invalid ? I havent come across any.

Have fun
Nick M

 

[NickM]

I think the safest option would be to avoid cheques altogether !

 

[NigelW]

I think the safest option would be to avoid cheques altogether !

Amen to that!

 

[Jimmyjamjars]

Here the $10 forms item 3. It could however be Great-Aunty Nora's antique clock that is settled ie gifted to the trustee to form the initial property subject to the obligations which comprise the trust rather than cash.

Thanks Nigel,
You have put my mind at ease, excellent posts from you. It should have been obvious from the outset that not all trusts in the olden days were settled with property, cash or any bankable commodity, thanks for clearing up a few things for me.

 

[Andrew_A]

Thanks for the replies

Well I deposited the cheque from my settlor "to XYZ trust" and $50 (a loan/gift? from me for any transaction fees before my first purchase) in a CUA business account. No ongoing fees, but transaction fees.

I have photocopied the cheque and all the deposit details. When the cheque clears I will minute an action of taking $10 out from the account and will photocopy the $10 and get a JP to witness me stapling it to the trust deed.

Seems like trusts can be as clear as mud sometimes!

I hope I haven't condemmed myself and any future generations to poverty by my actions.

 

[wbthom]

Hi Bill

With respect I disagree. To create a trust via a "settlement" (which is the way it is usually done in the circumstances we're talking about) you need:

1) a trustee
2) beneficiaries
3) some form of trust property
4) trust obligations.

Here the $10 forms item 3. It could however be Great-Aunty Nora's antique clock that is settled ie gifted to the trustee to form the initial property subject to the obligations which comprise the trust rather than cash. (Bear in mind Great Aunty Nora must be excluded as a beneficiary...) How are you gonna "bank" the clock?

What "proof" are bank statements? They're are really not much better proof than an orginal deed of settlement signed by the settlor which has a $10 note attached to it. Even if the $10 wasn't stapled to it that's not proof the $10 wasn't actually given to the trustee.

While it IS important that the $10 etc is ACTUALLY gifted to and received and held by the trustee, there's no need for it to be banked. Nor any time limit imposed upon banking the $.

I don't like cheques because they can be dishonoured or go stale. (If the settlement sum is a cheque you MUST bank it, don't staple it to the trust deed!!!)

Cheers
N.

Hi Nigel,

Great Discussion - certainly keeping me on my toes

As with legal opinions there seems to be many ways to skin the same cat!! - ie validly settle a trust. Obviously the assets used to settle in the past have not always been cash and attaching money to a trust deed (initially a gold coin) has been accepted practice for a long time. There also have been several different ideas about validating the provenace of the settled asset (whether it's $10 or Aunt Noras's clock) - Chris Battens idea of a witness seems a sound one. Bank statements are just one more modern form of "proof" that there actually has been a cash or cheque settlement sum provided to start the trust.

Nigel we're not in disagreement here' we're just looking at the same topic from slightly different viewpoints - your talking from the historical viewpoint I'm looking into the future from the sharp end.

As a consulting optometrist, dispensing medical type advice I feel as vulnerable to lawsuits as as many in the medical and paramedical fields these days. I guess where I'm coming from is legally future proofing trusts, in an asset protection sense due to the sharp rise in US style litigation. My thoughts are if you get the best possible structure, then you are in a position to not just defend the trust if attacked, but avoid being vulnerable to attack in the first place - hopefully saving me lots on legal fees and helping me sleep better at night.

Cheers,
Bill

 

[wbthom]

You have all brought up some very valid points.

i have had numerous discussions with lawyers and practitioners in relation to this matter over the years.

I am unaware of any cases that state that the settled sum must be banked within 28 days. I understand that some advisers have stated this in their instructions and as a result clients are led to believe that it is law.

I am happy to be corrected on this point if any case law exists.

Have fun
Nick M

Hi Nick,

Had a long talk with my advisors yesterday about the legal nature of the 28 day rule I previously mentioned.

You are correct in that there are no specific case laws that state this. Some of the heavy weight trust advisors and their legal teams are using these numbers as what they call legal "best practices" these days. They mention this is a distillation of hundreds of years of trust case law to minimise the likelyhood of future litigation.

The belief is that if a trust is clearly and recognisable settled within 28 days of dating the trust deed then it will be as asset protected as it's possible to get. It does not mean they think a trust invalid if not settled within that date - just less asset protected.

Although many people have stated that stamping the trust is also unnecessary, these advisors believe that if the trust is stamped by the office of state revenue within the same 28 days then it further "proves" the validity of the trust and further enhances asset protection.

This may all seem like a legal paranoia, but there is a great deal of concern about asset protecting trusts against an upsurge in US style willful lawsuits

Bill

 

[austini]

Hi Bill,

Although many people have stated that stamping the trust is also unnecessary, these advisors believe that if the trust is stamped by the office of state revenue within the same 28 days then it further "proves" the validity of the trust and further enhances asset protection.

Up here in Qld the OSR no longer stamps trust deeds in most instances. Any deed send to them for stamping will usually be returned unstamped with supporting documentation as to the reasons why it is no longer necessary.

More cautious advisors are still sending the deeds to the QLD OSR so that they have evidence in the form of correspondence that at least the deed has been processed by the OSR even if no stamp was applied.

This has all been very interesting.

Cheers - Gordon

 

[wbthom]

Hi Bill,



Up here in Qld the OSR no longer stamps trust deeds in most instances. Any deed send to them for stamping will usually be returned unstamped with supporting documentation as to the reasons why it is no longer necessary.

More cautious advisors are still sending the deeds to the QLD OSR so that they have evidence in the form of correspondence that at least the deed has been processed by the OSR even if no stamp was applied.

This has all been very interesting.

Cheers - Gordon

Hi Gordon,

You are correct re QLD OSR but the problem is if you have a QLD originated trust and you want to buy/finance properties in other states. Some lenders prefer the trust deeds to have been validly stamped so insisting to QLD OSR that the deed be stamped for other state transactions seems wise.

Bill

 

[mitchmakhan]

Hey guys try Suncorp Business Investment (internet account) they do not have any bank fees at this current time....(fingers crossed). I use them for my trusts...only problem is the charge $1 for every internet bank (external account) transfer...
Cheers Mitch

 

[NickD]

Hi Guys,

I had my HDT established in QLD with the Corp Trustee operating from there also. So no need to stamp in QLD as austini mentioned. I had every intention of only buying IP's in QLD. But hey I shouldn't limit my self to only buying there

Keeping this in mind and refering back to other threads about setting up other Trusts after reaching a certain $ size to minimise risk. Is setting up a Trust for each State you wish to invest in, a good idea. Certainly saves sending the deed all over the country side! So my QLD Trust only ever owns IP's purchased in QLD etc.

Hopefully I didn't go of topic too much.

Cheers,
Nick

 

[NickM]

Bill,
what you have is exactly as i assumed. BEst practice to get it done in 28 days. As for stamping a deed, i would never advise a client not to do it, however, it is not always done and it does not invalidate the deed.

I had a deed come in unstamped and after discussing it with their solicitor proceeded to get it stamped some 3 years after it was established. Late fees were applicable.

Nick
I dont think there is an issue using a Qld trust to buy properties interstate.

I havent come across any lenders that have found this to be a problem but maybe our mortgage borkers could comment. Rolf, Rolf Mr Ed

Setting up a trust for each state will certainly keep your accountant happy if you are buying in every state ! Ithink it would be cheaper to send the deed.

I know there are issues with HDT in WA in relation to stamp duty but i havent looked into it for some time.

NickM

 

[redwing]

$10

Bill,
what you have is exactly as i assumed. BEst practice to get it done in 28 days. As for stamping a deed, i would never advise a client not to do it, however, it is not always done and it does not invalidate the deed.


I know there are issues with HDT in WA in relation to stamp duty but i havent looked into it for some time.

NickM

Great thread guy's..all over the initial $10.

Just goes to show you need to get everything correct at the initial set-up, as i go forwardI seem to have more and more Questions..

I'm curious about the Stamp Duty issues nickM; as I'm in WA, does anyone have any ideas?

I set up a bank account as advised in the new set up bank account for the trust..fees are $4 per month though (cheapest they had), so $50 was deposited, in hindsight an internet account would've been a better option...However, if i'm also looking at buying/selling shares through the trust set-up what would be the better option..any ideas?

I'm still awaiting my HDT documents and am looking to purchase the next property in the HDT structure, luckily my broker is familar with the set up.

 

[Ralph]

Is my Trust Invalid?????

We setup a HDT recently with a Corp. Trustee. My wife, myself and son as primary beneficiaries.

Our neighbour acted as Settlor. He gave my wife $10 cash as the settled sum. She then electronically transferred $10 from her bank account into the Trust Account.

There is no record that she deposited the $10 to her own bank account before the electronic transfer to the Trust account - so no hard trail of the cash.

Our accountant advised in a letter once the Trust was setup that we should proceed to deposit the settled sum into the Trust account, but in my inexperience I was not aware of the significance of the legal trail.

Does the above make our Trust invalid - we already have two houses in there making disolving very painful if we have to create a new one....

Appreciate your views................anything beginning with "you don't have a problem" will be most welcome.