Why

Our mantra is ‘for friends’. Sharing the answers we give the adviser network aligns with this goal.

How

Each week we will share all the answers to questions raised by advisers with us in the table below.
The table can be searched via the find function. More detailed content is also available via the View blog, click here.

What

The answers relate to a range of technical questions raised in relation to areas such as trusts, companies, SMSFs, asset protection and estate planning. The standard lawyer disclaimer applies – the answers are general comments only and not legal advice. Specialist advice should always be obtained for any specific factual matrix

Commercial

Advisers can request any document be added to our list for a future launch on the NI platform.  Until the coding, automation and risk protection aspects for a new product are finalised, View can provide requested documents directly to advisers.

All assistance is provided on an upfront agreed scope of work and fixed pricing.  If common themes emerge over time then we also proactively look to release those products on the NI platform.

No, only deeds and agreements signed by individual trustees require witnessing.

Please contact us directly at solutions@viewlegal.com.au with a copy of the relevant document and we can confirm the process.

Our general preference is for initial enquiries to be directed to us via the client’s ongoing adviser, as most of the areas we specialise in require ongoing collaboration with the existing advice team, in order to achieve the best outcomes for the client.

There is a range of material available, including:

1. Technical books

2. Tailored in house education

3. Webinar program

4. Recorded webinars

5. Podcasts (including edited versions of previous webinars)

6. View University

7. View’s blog. To subscribe to the blog, please enter your email address in the subscription box in the right hand column on the landing page or alternatively, subscribe through your preferred RSS feed from your browser.

We are relaxed for you to use whatever you feel would be useful in whatever manner you wish.

No, as View is not a registered tax agent, we do not apply for TFNs or ABNs.

You will need to arrange the necessary registrations which, depending on the trust’s use, may include a tax file number, Australian Business Number and GST registration.

These registrations can also be completed through NowInfinity’s platform.

No. View has deliberately flipped the model on referral fees as, long before the 2018 Royal Commission, we believed this model to be broken.

Instead, View guarantees ‘wholesale’ pricing to each adviser on each matter to ensure the adviser can deliver a valuable fee for service solution to the client.

By flipping the traditional model, View ensures advisers have complete discretion as to how they price – without being forced to cap their fees by View’s pricing model.

View is recognised for its work in improving the pricing models for professional service firms, with director Matthew Burgess one of only a few Australian based Fellows of international pricing thinktank VeraSage.

View can assist advisers looking to develop their pricing skills through a range of education tools, see for example: Matthew Burgess and Business Model Iteration.

As the document being signed is a deed, the trust deed is signed in accordance with the Property Law Act in each jurisdiction (rather than the Corporations Act), which allow a company to execute a document by having it signed, sealed and delivered by two directors (or the sole director/secretary, where applicable).

That said, the directors also need to ensure the execution is consistent with any requirements imposed by the company’s constitution.

Ideally the incorrect name should be amended throughout the document wherever it appears and initialled by each party to the document.

If this was not done at the time the trust was established, the conservative approach is to prepare a deed of rectification.

One of the most significant pain points for advisers raised with NowInfinity is who is responsible for providing the legal advice when generating solutions on the platform.

Virtually all online providers of legal documents deliberately shift all risks to the adviser firm delivering the solution.

An example of typical exclusion wording is as follows:

By using our service agree that:

(a) we cannot, and do not, give you legal advice;

(b) the company that owns and operates this service is not a law firm;

(c) our service provides information to help you answer the questions and to order a product and that that information is information only, not advice;

(d) we cannot and do not warrant that a product you decide to order is appropriate or suits your needs;

(e) we cannot and do not warrant that your use of our service is appropriate or suits your needs;

(f) the documents you buy from us and the material on our website is only general; they are not prepared by us and we do not endorse them, rather we disclaim any responsibility for them.

… and the exclusions go on and on and on.

Some providers now do provide limited sign offs, however the key word is limited; for at least 3 reasons:

1. the law firms providing the sign off generally are related entities to the document provider and have no particular specialisation nor depth of experience in the required areas;

2. the sign offs are extremely narrow – and in most cases the exclusions to the sign offs are longer than the sign off itself;

3. the additional costs of the sign off make them increasingly prohibitive to access other than in isolated cases.

As another example of the game changing opportunities delivered by NowInfinity’s joint venture with View Legal, comprehensive legal sign off on all aspects of the platform is now available.

View Legal now provides complete support of NowInfinity documentation, providing legal signoff across 4 separate service levels, allowing advisers to tailor the solution that best meets the objectives of them and their clients.

The compliance certificate issued is one sentence, and provides along the following lines:

‘View Legal Pty Ltd confirms that the documentation is appropriate based on what we have been told and that we have provided a legal signoff on any specific issues raised with us.’

There are no footnotes or disclaimers.

The one sentence certificate is issued without qualification.

Simple, succinct and transparent. The exact opposite to heritage solutions.

While the legislation varies from state to state, the general position is that documents requiring witnessing, such as deeds, wills, and enduring powers of attorney are unable to be signed electronically.

This is obviously inconsistent with the way technology is evolving and the services offered by a range of providers, including Docusign.

With the development of new protocols such as electronic conveyancing, it is only a matter of time before the legislation is amended to expressly allow electronic signing in all jurisdictions.

In the meantime however, the conservative approach is that all trust deeds should be signed with ‘wet’ signatures.

In relation to trusts which have historically been established electronically, NI’s deed of ratification should be sufficient to satisfy third parties such as financiers regarding the validity of the trust (provided it is signed with a ‘wet’ signature), however there is a risk that further steps may be required if, for instance, the trust deed is required for Court proceedings.

All View documents adopt the permissive style of drafting approach for a number of reasons, including:

1. Minimising the length of documents by avoiding verbatim restating of legislation;

2. Reducing risk issues with verbatim restating of some parts of the legislation, but not other parts;

3. Minimising the risks with customers relying on invalid provisions (ie the only certainty in most revenue related areas of the law is change, verbatim restating of legislation at any moment in time creates an ever increasing risk issue as changes to the law are introduced).

A key component of the View Legal platform has been its dedication to early adoption of innovations that can help achieve the reason we built the platform – to create a firm ‘for friends’.

Like most businesses, our success essentially depends on a network of specialists. As a law firm, we have an agreement with each service provider that receives personal client information which requires that they comply with the Australian privacy legislation.

A summary of our virtual team currently (although it sometimes changes on a weekly basis) is as follows:

1. we have lawyers based in Melbourne, Sydney, Port Macquarie, Brisbane and the Gold Coast as well as the Philippines, India and South Africa. We are actively looking to have lawyers join the team in both Adelaide and Perth (and other cities), however our model and the skills required to be a good fit mean we ‘measure twice, cut once’ before committing.

2. our IT team has contributors in Sydney and Brisbane and various locations throughout India, together with cloud supported services throughout the USA and other confidential locations.

3. our marketing and collateral providers, particularly in relation to our book publishing business, are sourced from various locations throughout Europe, the USA, Canada, New Zealand, the Philippines and Australia. This said, we never outsource content creation, having trialled this on more than one occasion and failed spectacularly.

4. one of our favourite social media consultants is currently based in Sydney, other than when she is travelling in locations such as Buenos Aires, Spain, Italy, Greece, the UK, France and Germany.

5. one of our research consultants currently works out of Argentina.

6. we have copy editors based in New South Wales, Victoria, the US and the UK.

7. we have administrative and accounting support from assistants in the Philippines, New Zealand, Canada, Pakistan and Sweden.

8. our primary word processing provider (with us since 2008), who has been a critical part of our success, even in the years prior to View Legal launching, is based in India. As the popularity of platforms such as upwork and fiverr (that we have used extensively from their launch) continues to grow, we suspect the only certainty for our business is that our international footprint will also continue to grow.

This said, the growth of our international team has been matched by the growth of our Australian based team, and we take great pride in the fact that all staff enjoy flexibility around their work arrangements, and work remotely with access to physical office space on a needs basis only – arguably not surprising given the founders of View also founded what was regarded at the time as Australia’s first virtual law firm (elawyer).

Advisers can request any document be added to our list for a future launch on the NI platform. Until the coding, automation and risk protection aspects for a new product are finalised, View can provide requested documents directly to advisers. nnAll assistance is provided on an upfront agreed scope of work and fixed pricing. If common themes emerge over time then we also proactively look to release those products on the NI platform.

Unfortunately, we are unable to provide these certificates for a range of reasons, including because they require the relevant lawyer to provide statements regarding the specific factual circumstances which are outside our knowledge.
Due to the style of, and amount, of work involved, it is generally significantly more cost effective and time efficient for the bank’s in house legal team (or one of the bank’s panel lawyers) to provide the certification.

Companies

We utilise the methods of execution set out in section 127 Corporations Act, which confirms a company with 2 or more directors may execute a document by either

(a)  2 directors signing; or

(b) a director and a company secretary signing.

Where a company has a sole director and secretary, that director can sign.

However, section 127 is not exhaustive of the methods by which a company may execute a document.

Perhaps less well known is section 126 of the Corporations Act that allows for a company to be bound by an individual acting with the company’s express or implied authority.

In situations where section 126 is being relied on a company’s constitution is also often relevant. For example, a constitution may provide that the directors can resolve that a specified director is authorised to execute documents.

Third parties will of course not necessarily be aware of the internal resolutions of a company.  The Corporations Act under sections 128 and 129 therefore provides some protection for third parties confirming that they may rely on certain statutory assumptions as to valid execution.

 

These assumptions have a number of limitations however, for example they cannot be relied on where:

(a)  The person seeking to rely on the assumption knew or suspected that the assumption was incorrect; or

(b) The document is being executed relying on section 126, as opposed to under section 127.  In other words, if 2 directors (or one director and one secretary) sign then the assumption can be relied on, however if one director only signs and they are not the sole director and secretary (or they are the sole director of a company that has no secretary) then the protection of the valid execution assumption is unavailable.

 

Practically therefore where are sole director signs a document third parties should ideally:

  1. obtain confirmation (for example by performing an ASIC search) that the person is the sole director and secretary;
  2. obtain an extract of the constitution for the company and a copy of the resolution appointing the director as an authorised sole signatory; or
  3. require the company to instead grant power of attorney to the relevant director.  A copy of the power of attorney should then be produced at the time of signing.

Our strong recommendation for insurance funded buy sell arrangements is that the market value of the business is determined by an independent adviser (such as the firm’s accountant) at the point in time when an insurable event occurs and that the purchase price payable by the remaining owner is determined with reference to that market value.

At times the parties will however look to mandate that the purchase price is to be $1, regardless of whether any insurance is received.

Our experience is that unless the quantum of insurance cover, and probability that the insurance proceeds will in fact be paid are reviewed regularly, there is a significant risk that adverse consequences can arise adopting an approach of capping the payment at $1.

These consequences can include:

a if there are no insurance proceeds received (for instance, because the insurable event falls within an exclusion under the policy), the exiting owner (or their estate) will still be forced to sell their interest for $1 and will not receive any other payment for the interest;

b the exiting owner may not receive adequate consideration for their equity interest in the business, where the market value has materially increased since the arrangements were last reviewed; and

c if the proceeds from the insurance policy do not reflect the true market value of the business at the time of an insurable event, the exiting owner may be subject to capital gains tax on the market value of their interest (determined by the Tax Office with reference to the market value substitution rules) rather than the pre-agreed purchase price. This could potentially result in a scenario where the capital gains tax payable exceeds the amount received by the exiting owner for their interest.

As is generally well understood, section 127 of the Corporations Act confirms a company with 2 or more directors may execute a document by either

(a) 2 directors signing; or

(b) a director and a company secretary signing.

Where a company has a sole director and secretary, that director can sign.

Perhaps less well known is section 126 of the Corporations Act that allows for a company to be bound by an individual acting with the company’s express or implied authority.

In situations where section 126 is being relied on a company’s constitution is also often relevant. For example, a constitution may provide that the directors can resolve that a specified director is authorised to execute documents.

Third parties will of course not necessarily be aware of the internal resolutions of a company. The Corporations Act under sections 128 and 129 therefore provides some protection for third parties confirming that they may rely on certain statutory assumptions as to valid execution.

These assumptions have a number of limitations however, for example they cannot be relied on where:

(a) The person seeking to rely on the assumption knew or suspected that the assumption was incorrect.

(b) The document is being executed relying on section 126, as opposed to under section 127. In other words, if 2 directors (or one director and one secretary) sign then the assumption can be relied on, however if one director only signs and they are not the sole director and secretary then the protection of the valid execution assumption is unavailable.

Practically therefore where are sole director signs a document third parties should ideally:

1. obtain confirmation (for example by performing an ASIC search) that the person is the sole director and secretary;

2. obtain an extract of the constitution for the company and a copy of the resolution appointing the director as an authorised sole signatory; or

3. require the company to instead grant power of attorney to the relevant director. A copy of the power of attorney should then be produced at the time of signing.

There an array of tax, corporations law and commercial issues relevant in relation to share options.

This said, yes the NI constitution confirms there is the ability (amongst other arrangements) to create share options as follows:

Subject to the Act and any rights previously conferred on the holders of any existing share the Directors may issue shares with any other rights and terms they determine in their absolute discretion.

Exactly what will happen depends on the structure of the relevant company.

For example, if it is a sole director and sole shareholder company there is a section of the Corporations Act that provides a pathway (extracted below, section 201F).

Similarly, if it is a sole director and not a sole shareholder company, generally it is the case that the shareholders will have the ability to appoint new directors pursuant to another section of the Corporations Act (again extracted below, section 201G).

There are additional issues to be aware of where the company acts as trustee of a trust (for example, any appointor powers) or trustee of a SMSF (for example, the requirements under the superannuation laws);

Having said the above, the conservative approach would be to create powers of attorney now for each company, although this approach does obviously involve additional costs and complexity for each company and ongoing compliance issues.

+++++++++++++++++++++++++

Section 201F

If a person who is the only director and the only shareholder of a proprietary company:

(a)  dies; or

(b)  cannot manage the company because of the person’s mental incapacity;

and a personal representative or trustee is appointed to administer the person’s estate or property, the personal representative or trustee may appoint a person as the director of the company.

Section 201G

A company may appoint a person as a director by resolution passed in general meeting.

Enquiries should be made of all third parties who may have held a copy of the constitution at any stage. For instance, the company’s accountant, bank, solicitor and potentially ASIC should be contacted to request a copy.

If a copy is unable to be located, a replacement constitution can be adopted however the issues flagged in the FAQ post titled ‘What are the alternatives if the share rights for a company are uncertain?’ must be considered.

Yes a number of words are restricted and can only be used with ASIC’s prior approval (which will only be provided in limited circumstances). The restricted words include ‘building society’, ‘trust’, ‘university’ and ‘chamber of commerce’. A full list of the restricted names is available at the following link:

https://asic.gov.au/for-business/registering-a-company/steps-to-register-a-company/company-name-availability/

No, however rule 20.7 allows the directors to appoint a company secretary. For some years now it has not been mandatory under the Corporations Act for a company to appoint a secretary.

The appointment of a public officer is addressed in the suite of incorporation documents included with each company incorporation package, rather than the constitution itself and reflects best practice from a Tax Act perspective.

The constitution is designed to be appropriate for almost all circumstances and therefore does not contain provisions around issues such as rights of pre-emption or the ‘fair price’ of shares.

These types of clauses should be considered on a case by case basis and included as part of a properly crafted shareholders agreement.

The shareholders agreement should address a range of directly related issues to ensure unintended consequences are not triggered. In other words, the shareholders agreement should be tailored to meet the specific circumstances of the client.

Release of a comprehensive shareholders agreement is already in the planning for the NowInfinity platform. In the meantime, View can provide shareholders agreements (and related documents such as insurance funded buy sell deeds) with up front scopes of work and fixed pricing.

Memorandum and articles of association are the precursor to a company constitution and were used by companies prior to the introduction of the Corporations Act 2001 to govern the functioning of the company.

Given any company which is still operating under a memorandum and articles of association will be using a document which is many years out of date, it is generally prudent to update the document to replace it with a modern constitution.

This can be done by using the ‘Constitution update’ produced on NowInfinity’s platform.

Discretionary dividend access or dividend only shares (DOS) were historically not a standard feature of the NI constitution.

Based on adviser feedback however a DOS, with the rights set out at the end of this FAQ entry will be included in all constitutions from 1 July 2018.

We recommend that specialist tax advice about the appropriateness of a DOS in the context of each specific factual matrix should be obtained. This is because there are a range of often complex tax (for example, value shifting, the debt/equity regime and anti-avoidance provisions) and Corporations Act ramifications of utilising DOS’s.

The Australian Tax Office (ATO) has made numerous public statements outlining concerns with allotting and paying dividends to the holder of a DOS. We are also aware of high audit activity by the ATO for accounting practices which may have historically assisted clients with implementing a DOS arrangement.

The risks of ATO focus and potential audit have heighten in the area of DOS’s in recent years due to increasingly sophisticated data matching between the ATO and the ASIC.

View can provide a proposed scope of work and fixed pricing to assist, where requested.

The rights of the H class DOS are as follows:

1.1 Holders of H shares have the following rights and are also subject to the following restrictions:

(a) regardless of any provision contained in this document, the right to receive dividends as paid from time to time by and at the sole discretion of the Directors determined to be payable only to the holders of H shares, with the discretion independent of the exercise of discretion in relation to any other class of shares;

 

(b) H shares do not have the right:

(i) to any entitlement to, interest in, or right in respect of any dividend that the Directors determine to be payable or that may be declared from time to time in respect of a H share until that dividend is actually paid to the holder of the H share, or their nominee;

(ii) to receive notice of, attend and vote at a General Meeting of the Company;

(iii) in a winding up or reduction of capital of the Company to repayment of the capital paid up on that share; or

(iv) in a winding up or reduction of capital of the Company to participate in the distribution of the surplus assets of the Company;

 

(c) H shares are redeemable at the option of the holder or the Company;

(d) the Company must give at least five Business Days prior written notice to the holder of a H share of the Directors’ intention to redeem the H share;

(e) the holder of a H share must give at least 20 Business Days prior written notice to the Company of their intention to have their H share redeemed by the Company; and

(f) where a H share is redeemed, the amount payable by the Company on redemption will be any amount less than the issue price determined at the sole discretion of the Directors.

If the share rights are uncertain, there are two broad approaches that can be adopted:

(a) Rather than replacing the entire constitution, we may simply be able to amend the relevant rules. For instance, if the constitution is only being updated to address a specific issue (such as creating a new class of shares), we can simply insert a new clause addressing that issue can be inserted, rather than replacing the entire document.

(b) If a complete replacement is needed, the document can be prepared with assumptions made in relation to the rights attaching to ordinary shares (in particular that the ordinary shares have always had the right to receive dividends, to the repayment of capital and to participate in the distribution of surplus assets on a winding up of the company). There are however a number of potential tax, stamp duty and Corporations Law issues that could apply when making assumptions about the rights that attach to a particular class of shares and specialist advice should be sought in relation to this approach, before it is adopted.

Corrections to company documents (via an ASIC form 492) can be made directly through the NI platform.

The process for removing a director will depend on the provisions of the company’s constitution (which would generally provide the shareholders with the right to remove directors by ordinary or special resolution). If there is no company constitution in place, section 203C of the Corporations Act is a replaceable rule which allows the shareholders to remove directors by ordinary resolution.

There is no requirement in the Corporations Act for a director to be notified of their removal, however the prudent approach is to ensure the director is informed in writing so they are on notice that they no longer hold the position or have authority to act on behalf of the company.

The standard share rights can be downloaded here.

Where the rights match another class of share set out in the constitution, we generally recommend a correction is lodged with ASIC to ensure the share classes on issue are consistent with the constitution.

If tailored share class rights are required, View can provide a proposed scope of work and fixed pricing to draft the required rights as part of a bespoke constitution update.

The NI constitution allows the directors to issue shares with any rights they think fit (not just the classes specifically listed in the constitution).

If a new class of shares is to be allotted, the directors would need to pass a resolution specifying what rights attach to those shares and would ideally obtain legal advice regarding the resolution, including in relation to any potential revenue consequences.

Alternatively, the constitution could be updated to incorporate the new class of shares, prior to the allotment.

NI’s constitution does not prohibit shares from being held on trust, the relevant clause simply provides that the company is only required to recognise and deal with the registered legal owner. For example, the company is only required to provide the legal owner with notices of meetings and only the legal owner can attend meetings and vote.

The clause is commercially best practice for a number of reasons, including significant practical issues that arise with any other approach.

A shareholder can own shares in its capacity as trustee for a bare trust, family trust or any other type of trust and the rights between the trustee and beneficiaries are not affected by the provision in the constitution.

ASIC will allow a company to be incorporated with a company name identical to a cancelled business name provided that at least 6 months has lapsed since the date of the business name cancellation.

Discretionary Trusts

As resolutions are work required to be done by qualified accountants, NowInfinity (as a document provider) and View Legal (as a law firm) do not provide tailored distribution resolutions.

Although the case law is somewhat unclear, the conservative position is that an unwitnessed trust deed is invalid because it has not been duly executed. The case law suggests that a deed needs to be witnessed and signed contemporaneously for it to be valid.

There are a number of potential options to address this type of situation, depending on the exact factual matrix and level of protection the client is wanting to achieve. As always, View can provide an upfront scope of work and guaranteed fixed price to assist, upon request.

In late 2018, for the first time, we saw some bank lawyers start requesting the removal of the clause that ensures the automatic disqualification of a trustee on bankruptcy be removed.

In a sentence, we are yet to see a coherent reason for banks needing the change – however commercially accept that the golden rule likely applies (that is, unless the request is complied with the financier will withhold funding).

Unfortunately, removing the clause makes the trust less effective on a number of levels, particularly in areas such asset protection and succession planning.

Candidly, the request is one that appears to be made by lawyers who do not specialise in trusts, and therefore do not necessarily appreciate the rules in this area.

The conclusion that this may be the case has been reinforced in requests View has seen where the bank lawyers asking for the trustee related clause to be deleted manage to identify the wrong clause.

In particular, the bank lawyer provides advice that the automatic trustee disqualification provisions are offensive.  However they then list the clause that automatically disqualifies the principal or appointor role as the one that must be removed – a clause that the bank lawyer’s accept (once the error is pointed out) is irrelevant to the bank and can remain in the deed.

The trust deed has an array of powers that are deliberately permissive, rather than prescriptive (see the separate FAQ explaining this further).

Some powers may from time to time be seen by the Tax Office as not being effective for tax purposes; for example streaming primary production income.

The reasons we adopt this drafting approach are broadly as follows:

  1. The drafting approach creates an option, not an obligation.
  2. While the Commissioner’s view is that (for example) streaming primary production income is ineffective for tax purposes, that view is not necessarily correct – and could be proven to be so one day – or the rules might change.
  3. In any event, the approach is effective for trust law purposes.
  4. In our experience, trusts are rarely set up solely as tax tools – they operate under trust law and need to do what trust law permits.
  5. While the tax consequences of a trustee’s actions might be determined with reference to the tax law, that is something that a trustee should take advice on once they have considered how they will exercise their fiduciary obligations as a matter of trust law.
  6. To suggest something might be ineffective for tax planning purposes if the trustee takes a particular action permitted by the trust deed is not a reason to exclude it from the deed.
  7. As the deed permits an array of actions that either now, or in the future, may have adverse tax consequences and therefore it is always best for clients to get specialist advice as appropriate.

Whether originals or copies will be required depends on the requirements of the court where the documents are being requested. This said, even where electronic copies may be lodged, it must also be possible to produce the original documents on demand.

An often posed question in relation to trust structuring is – why is it that some trusts (including testamentary trusts) have appointor or principal powers, whereas others do not?

As is the case in many estate, trust and tax planning issues, the answer is often that ‘it depends’ on the exact factual matrix.

Very broadly we recommend an appointor role be used where there is a desire by the willmaker or person establishing the trust to ensure particular people have ultimate power to mandate control of the trust.  That is, by having the right to remove an incumbent trustee – regardless of who the trustee is from time to time.

Some of the factors that can be relevant in this regard are as follows:

Issue Relevance for appointor/principal power
Ultimate control is intended to change on certain trigger events If the trigger event occurs, the appointor may be automatically replaced by (say) an independent adviser.
Adult supervision

 

While (say) adult children may be nominated as trustees, there may be the desire to have another party (again, for example, an independent adviser) granted the right to unilaterally remove the trustee.
Bespoke ‘super powers’

 

There may be additional powers granted to an appointor over and above the traditional right to unilaterally remove and appoint trustees – for example the right to veto certain distributions, nomination of new beneficiaries or end the trust.
Automatic trustee disqualification

 

If there is the automatic disqualification of a trustee on certain events, the appointor may have the sole authority to appoint a new trustee.
Tailoring of triggering events

 

The types of triggering events causing automatic disqualification (both for expulsion of trustees and appointors) might include death; the loss of lawful capacity; committing an ‘act of bankruptcy’ or being a party to Family Court proceedings.
Lapsing of appointor powers As part of an estate planning exercise it may be that (say) a parent retains appointorship during their life time, however on death the role of appointor automatically ends.
One individual is intended to have complete control of the trust Naming that individual as appointor would allow them to appoint another trustee, without sacrificing overall control.
Multiple people (for instance, siblings) are intended to control the trust The siblings could be named as joint appointors however given the power to appoint/remove the trustee would usually need to be exercised by all appointors acting unanimously, this role becomes largely superfluous if there is a dispute.
Specific trustee control mechanisms are being implemented (for instance, a tailored constitution for the trustee company) An appointor would not be used for the trust, as any appointor could unwind the control mechanisms by removing the trustee.
The intended controller of the trust is a non-resident The non-resident may be named as appointor of the trust to retain control, while Australian residents are named as the trustees to ensure the trust remains an Australian tax resident.

Ultimately, the most critical issue generally is that regardless of whether there is an appointor role there must be a disciplined approach to understanding the terms of the trust deed; this starts with following the mantra ‘read the deed’ – and ensuring specialist advice is obtained as appropriate.

Many of the trusts that View (and other law firms) establish contain a provision in them that we call an ‘automatic disqualification’ provision.

The provision is drafted to ensure that anybody in a key role, such as an appointor, principal or trustee, will get automatically removed from that role upon certain events happening to them.

The most common disqualification scenario is death or incapacity.

If you’ve got a trustee who becomes incapacitated or dies, then obviously they need to be removed and someone else needs to step into that role to manage the trust.

However, those triggering events can also include a family law breakdown.  We have a clause in our trust deed or our will saying that if the appointor, principal or the trustee separates from their spouse, then they are automatically disqualified from that role and somebody else steps in in their place.

View is not aware of any instances where the effectiveness of that type of clause has been tested before a Court, however we think it has reasonable grounds of being held to be valid if it is tested.

When View is asked to give advice on this issue in a particular factual scenario we will often include this type of provision on the basis it gives our client a fighting chance of retaining ultimate control of the trust if anything goes wrong for them personally, since they didn’t actually make that change to the control of the structure themselves.

As usual in these areas, specific specialist advice should always be obtained if there is any doubt as to the consequences or appropriateness of the provisions.  As one example, thought should be given to having a backup appointed to step in if the initial person appointed is automatically disqualified.

No. The Tax Office has confirmed in a public ruling (namely Taxation Determination 2006/4, now withdrawn for unrelated reasons) that ‘’clearly, the name by which a trust is known is not a term of the trust’’.

Thus, a decision to change the name of a trust does not lead to the creation of a new trust.

The position for stamp duty purposes in each state is the same as the tax position.

All View Legal trust deeds automatically disqualify an individual trustee or principal who dies, loses capacity or becomes bankrupt.

Where that individual is disqualified, the trust deed specifies who succeeds them in that role and allows an individual to nominate their preferred successor.

In addition to the scenarios above (death, loss of capacity or bankruptcy), View Legal’s trust deeds include an option to include a relationship breakdown as an event of disqualification.

‘Relationship breakdown’ is defined with reference to the Family Law Act and includes the breakdown of a de facto relationship.

Where this clause is included, an individual occupying the role of trustee or principal will be automatically removed from that role if they suffer a relationship breakdown.

The option should generally be selected where a trustee, principal or key person behind establishing the trust is concerned about the exposure of trust assets in the event of a relationship breakdown and is comfortable for another person to assume ultimate control of the trust in these circumstances.

How useful the provision will be in the event of a relationship breakdown will depend on a range of issues and specialist advice should be obtained before relying on the provision.

Any declaration of trust can have a range of potentially adverse transaction cost consequences as well as trust law ramifications.

Where the legal owner of shares is holding them beneficially as trustee, the only trust instrument that is relevant is the trust deed for that existing trust.

If third parties (for example financiers) request a copy of the ‘declaration of trust’, the trust deed for the trust should be provided.

In no circumstances should any further declaration of trust be prepared.

This area of the law is potentially complex, however ultimately the conservative position is that the settlement sum should always be deposited into the trust’s bank account, and ideally, it should in fact be the first deposit.

The approach of placing the settlement cheque (or a cash equivalent of it) on the file for the trust can be problematic for a range of reasons, including:

1. Where the settlement sum is by way of cheque, the cheque will normally go stale after 13 months; and

2. Even where cash is stored with the trust, it is difficult to provide documentary evidence of the settlement sum forming part of the trust if the cash is lost.

Ensuring that the settlement sum is deposited into the bank account of the trust at least avoids each of these two issues.

State based legislation generally mandates that (subject to any provision to the contrary in the trust deed), if a trust is established with two or more trustees, a retiring trustee will not be discharged unless there remains either at least two trustees or a ‘trustee corporation’ (i.e. the public trustee or a trustee authorised by statute).

Generally the remaining 2 trustees can be 2 individuals or 2 companies or a combination of both.

Although most recent trust deeds contain a clause over-riding this provision, not all deeds do – another example of the mantra ‘read the deed’.

The NowInfinity/View trust deed does address the above issue via the definition of ‘Subsequent Trustee Criteria’, which confirms that:

(a) a sole trustee may act; and
(b) a retiring trustee is fully discharged even where only one trustee remains after the retirement.

This type of provision requires specialist planning advice. View can generally provide assistance in this area directly to advisers. All assistance is provided on an upfront agreed scope of work and fixed pricing. If common themes emerge over time then we also proactively look to release those products on the NI platform.

The NI deed has complete flexibility around the income definition and specifically confirms a definition of income according to ordinary concepts.

The trustee has the ability to exercise its discretion each year, or at each time a distribution is made and given a resolution is being made on each occasion anyway our strong recommendation is that the flexibility be retained, with the back up position (as set out in the deed) that in default of a decision the definition under section 95 of the Tax Act applies.

Given that a failure to make a determination will in our experience only apply when the resolution itself is void (or not made in time under the Tax Act) – and thus only really arises on an audit – this is the appropriate conservative approach, however firms can have a template resolution adopting a different default definition which is the approach we recommend be adopted where (say) a default definition of income according to ordinary concepts is preferred.

No, the sole function of a settlor is to establish the trust.

Once the settlor pays the settlement sum they have no further involvement with the trust.

Nothing of substance generally turns on who the settlor of a trust is and the financial position of the settlor (or their related entities) is of no consequence in relation to the trust.

The settlor is a factual aspect as at a moment in time, analogous to the date on which the trust is established, and therefore cannot be changed.

Given that it is likely that any attempt to change a settlor will have adverse trust law and tax consequences, and will require court approval to be a possibility it is generally best to test why it is being suggested the settlor should be changed and what benefits is it hoped will be achieved.

If the settlor is someone who it was intended should also be a beneficiary of the trust please contact us and we can provide a suggested scope of work and fixed pricing to assist.

Under the NI deed the vesting date rules are addressed automatically with access to perpetual trusts for those set up in South Australia (the only jurisdiction that currently allows this structure).

The NI deed also hardwires in the ability to be a perpetual trust if laws in other states change in the future.

Specific advice is generally recommended for trusts being set up outside South Australia that want to avoid having any vesting date – this can generally be achieved however the complexities involved mean the solution needs specialist additional legal structuring. In other words, while perpetual trusts set up outside South Australia are not currently available through the NI platform, View works with advisers to identify what they were trying to achieve and can produce the appropriate documents accordingly. All assistance is provided on an upfront agreed scope of work and fixed pricing. If common themes emerge over time then we will look to release this product on the NI platform.

The NI deeds are tailored based on all relevant state based issues – primarily in relation to stamp duty issues around changing trustees and the foreign beneficiary rules.

Yes, subject to the terms of the relevant trust deed, taxable capital gains can generally be offset against revenue losses (conversely, revenue profits can only be offset against revenue losses and cannot be applied against capital losses).

Generally speaking, a discretionary trust deed should be updated when:

1. there is a change in the law surrounding discretionary trusts relevant to the trust (for example the 2018/2019 changes concerning foreign beneficiaries);

2. there is a change in the client circumstances warranting review and amendment of the deed; or

3. significant time has lapsed since the deed was established or last varied. If the deed predates the High Court decision in Bamford from 2009, then the deed should generally be updated to include the significant changes to the laws relating to income streaming.

We have a number of standard checklists available through our Checklist Manifesto Platform, including one for discretionary trusts, which can be found here (you will need to be logged in to view this page). Completing this checklist can also help identify if a trust deed should be updated for the Bamford changes.

Where a single trust needs to be updated, this can be done through the NowInfinity platform. If bulk updates are required (e.g. more than 10 deeds) please contact us directly.

Alternatively, if you would like us to complete a review of the trust deed in the context of any specific concerns or issues you have identified, we can provide a suggested scope of work and fixed pricing upon request.

Yes, however specialist advice is required in relation to the tax and stamp duty implications of the change, before any documentation can be prepared.

There are various ways in which a beneficiary can be added or removed from a trust (including by disclaimer, renunciation, variation and resolution) and a review of the underlying trust instrument is required to ensure the most appropriate path is adopted.

The addition or removal of a beneficiary can also trigger substantial tax or stamp duty costs. For instance, in some instances a change of beneficiary may raise capital gains tax resettlement issues. In addition, a number of jurisdictions impose stamp duty on changes of beneficiaries based on the unencumbered dutiable value of the underlying assets of the trust.

As always, View can provide an upfront scope of work and guaranteed fixed price to assist, upon request.

The distributable income of the trust includes, whether derived directly or indirectly (including by entitlement through other trusts) all capital gains (including any discount capital gain under subdivision 115-A Income Tax Assessment Act 1997 (Cth)) received by the trust during the relevant period and that capital gains can be identified as a separate category of income.

We recommend the any distribution resolution is crafted to ensure that distributable income includes gross capital gains, not the discount gains or alternatively that a capital distribution for the discount amount is included in the resolution (if the gain is to be streamed). For this to be effective, the trust accounts must be consistent with the resolution (i.e. including the gross gain in the distributed amount).

Template distribution resolutions are included with each new trust establishment on the NI platform.

Provided the errors are identified before the trust undertakes any substantive activities (for example nothing more than establishing a bank account), the trust should be vested and a new trust with the correct terms established. This approach will generally be far simpler and more cost effective than attempting to rectify the error in the existing trust instrument and will simplify future dealings with third parties such as financiers.

If the trust has acquired assets or undertaken activities, please contact us and we can provide a suggested scope of work and fixed pricing to assist.

Broadly the position here is the same as where an SMSF deed has been lost (see previous FAQ entry). However preparing a deed of variation and ratification will generally be fundamentally more problematic for other types of trusts as it is almost certain there will be significant tax, stamp duty and trust law consequences.

There are also a number of different approaches that can be adopted in order to rectify the situation.

We recommend that the potential consequences and options are addressed and discussed with one of our specialist lawyers before considering what (if any) documentation should be prepared, and provide a proposed scope of work and guaranteed fixed pricing to assist, where requested.

When a new trust is established on our platform, one of the interview options allows the user to request that a foreign beneficiary exclusion is inserted into the deed.

This option needs to be selected if the trustee wishes to avoid any foreign trust land tax surcharges or foreign acquirer duty surcharges (which apply in most states).

Where it is selected, additional provisions are inserted to exclude any foreign beneficiaries from the trust, to satisfy the requirements of the relevant State Revenue Office.

This approach should be used with care as the foreign beneficiary exclusion is irrevocable and cannot subsequently be amended or removed from the deed.

The platform also includes a deed of variation product to insert the foreign beneficiary exclusion into an existing trust deed.

The ‘foreign purchaser’ rules across Australian mean many trust deeds need to be updated to ensure they will not be liable for additional stamp duty or land tax, when they acquire property.

These additional surcharges can be significant – for instance, in New South Wales, the foreign acquirer duty surcharge is 8% of the market value of the property being acquired and the land tax surcharge is 2% of the land value. These costs are in addition to existing government charges such as land transfer duty.

NowInfinity’s foreign beneficiary deed of variation is intended to ensure the trust being updated will not be a ‘foreign person’ or ‘foreign purchaser’ for the purposes of foreign acquirer duty (in Queensland, NSW, Victoria, Tasmania, Western Australia and South Australia) and land tax surcharges (in Queensland and NSW). The deed of variation will also be effective in other jurisdictions as equivalent legislation is implemented.

All variations can be implemented leveraging the NowInfinity platform by both subscription and PAYG customers.

The variation can also weave in other required provisions, for example to manage the Tax Office rules in relation to income streaming and effectively managing unpaid present entitlements.

Unfortunately, the new rules do have some additional complications in certain situations. For example, each jurisdiction imposes separate requirements and the deed of variation does not address the following issues, which should be considered on a case by case basis (with specialist advice sought where appropriate):

a the NSW rules include a requirement that any named beneficiaries who are foreign residents are expressly removed as named beneficiaries. While the deed of variation
automatically removes foreign residents as a class, it does not expressly remove any named beneficiaries;

b the Queensland provisions require that any non-resident default beneficiaries are excluded from the Trust. The removal of default beneficiaries is a dutiable transaction in Queensland and the deed of variation should not be used unless the duty consequences have been first confirmed; and

c in Queensland, the Stamps Office retains the ability to both exempt a trust otherwise caught by the rules, and reassess a trust which had otherwise not been previously caught (within certain timeframes).

Historically, our approach has been to deliberately limit the spouse definition only to lawfully married spouses on the basis that:

1. If a client is in a de facto relationship and wants that de facto to benefit, then they can include the spouse as a named beneficiary on establishment of the trust or if the trust has already been established, by exercising the power to nominate a new beneficiary;

2. Given the difficulty in ascertaining whether the de facto relationship qualifies under section 4AA of the Family Law Act, and that this determination relies on a question of fact which could change over time, our preference is to limit spouses to lawfully married spouses as it is the only objective criteria by which it is possible to ascertain at a particular point in time whether or not a person was in fact a spouse (i.e. the date of marriage or divorce); and

3. We also include the ability to nominate additional beneficiaries under the deed so a de facto spouse can be nominated as a beneficiary in the future if desired.

The approach outlined here is directly as result of our extensive experience being engaged by family law firms across the country to provide strategic advice in relation to trusts and family law issues.

This said, inspired by user feedback, from 15.6.18, advisers will have the choice in the establishment interview of whether to include de factos as eligible beneficiaries.

Division 7A

Arm‘s length loan arrangements have provisions that protect the lender if a borrower is in default.

One of the main protections in this regard is the ability for the lender to demand immediate repayment of the debt if the borrower is in default.

The NowInfinity Division 7A agreement includes accelerated provisions in the event of a default.

In a word – yes. The Division 7A loan agreements are regularly reviewed and updated to ensure they reflect both the legislative position and the various statements published by the Tax Office from time to time.

It is well settled law that in order to have a valid contract, consideration must be given.

Similarly, it is well settled that consideration need not be by way of money.

Furthermore, journal entries are a valid way in which to document obligations, so long as they are supported by a written agreement.

Care must be taken in relation to using the drawdown acknowledgement provided with the Division 7A agreement that forms part of the company constitution.

This is because the template provided assumes the borrower is a single individual (not acting in their capacity as trustee).

The template is set up in this manner as there is no way of knowing who the borrowing party will be at the date of adopting the constitution.  Therefore, practically, there is no way to easily automate the signing provisions that will be required to make the document valid.

Care also needs to be taken with reference to the Tax Office’s Taxation Determination 2008/8, given that the example profiled there of loans made pursuant to the terms of a constitution only references loans by a company to an individual shareholder.

More appropriately, the Division 7A Drawdown Acknowledgement package on the NowInfinity website can be used for this purpose, assuming there is already a compliant Division 7A Loan Agreement in place between the relevant parties.

Given the total amounts advanced in any period will often be unknown, the NI Division 7A agreements are structured to allow flexibility.

In particular, the agreements confirm that any entries in the lender’s general ledger of advances made are conclusive proof of the dates and amounts that the lender has lent to the borrower.

There is also the option for the parties to sign a formal drawdown notice to confirm any advances made from time to time.  A template drawdown notice is provided by NI in a schedule to the Division 7A Loan Agreement and in a schedule to the Constitution.

If the Drawdown Acknowledgement template that is contained in the Constitutions is used, then care must however be taken when using it, because the template provided assumes the borrower is a single individual (not acting in their capacity as trustee).

If the borrower is not a single individual, specific amendments will be required.

The Division 7A Drawdown Acknowledgement package on the NowInfinity website can be used for arrangements where the borrower is not a single individual, assuming there is already a compliant Division 7A Loan Agreement in place between the relevant parties.

We are unable to prepare subdivision EA agreements under the wholesale platform due to the changes announced in the 2018 Federal Budget.

In this regard, it was announced that there would be a number of integrity changes introduced, effective 1 July 2019, to clarify and streamline the operation of Division 7A.  If passed, the proposed changes would mean (amongst other things) that UPEs are regulated under Division 7A. More information in relation to these changes can be found on the ATO website at this link – https://www.ato.gov.au/General/New-legislation/In-detail/Other-topics/Targeted-amendments-to-Division-7A/

We understand that the most common scenario where an agreement is required is where there is a loan from a family trust to an individual and there is also an existing UPE owed by the trust to a company where the individual borrower is a shareholder/associate.

While we can assist with strategic subdivision EA advice, a suggested scope of work and fixed pricing would need to be provided once we understood what was required.  This said, until the 2018 Federal Budget changes become law, the utility of any strategic advice is likely limited.

From February 2018 NI company constitutions contain a Division 7A loan agreement which applies to loans between the Lender and its shareholders who are individuals. There are also stand alone Division 7A loan agreements.

Pursuant to these documents, a Lender may make advances to a Borrower and any advances will be subject to the terms and conditions of the Loan Agreement.

Each drawdown should be confirmed in writing and the Division 7A Drawdown Acknowledgement package on the NowInfinity website can be used for this purpose, assuming there is already a compliant Division 7A Loan Agreement in place between the relevant parties.

Yes, however the obligations imposed by Division 7A (including the consequences of non-compliance) apply to each borrower separately (in relation to their proportion of the loan amount) so best practice is generally to have a separate loan agreement for each borrower.

While NI’s platform includes the ability to generate a 25-year loan agreement, the agreement will only satisfy the requirements of the Tax Act if it is accompanied by a registered mortgage over land.

NI does not currently generate or assist with registration of mortgages, so additional specialist advice and documentation is required where a 25-year loan agreement is intended to be created.

The constitution contains a schedule making provision for seven year loans by the company to members, which we believe satisfies the requirements set out in Tax Determination 2004/86 (which has been withdrawn, notwithstanding that the Tax Office’s views in the area remain largely unchanged) and TD2008/8 for compliance with Division 7A Income Tax Assessment Act 1936 (Cth).

For completeness, the provisions in the schedule only apply to loans made by the company in its own capacity (i.e. not in its capacity as trustee of a trust) and the Tax Office’s view in TD2008/8 is that the shareholder and the company are still required to agree in writing that the provisions of schedule will apply to the shareholder loan (for instance, by exchange of correspondence).

We recommend that you obtain specialist advice if loans are to be made by the company other than to members, as the tax consequences of these arrangements can be complex. Similarly, if you are in any doubt as to the implications of the company making a loan to a member we recommend that advice is obtained, ideally before the loan is made.

Estate Planning

For most invoices issued by View Legal Pty Ltd for estate planning packages, customers can generally attribute up to 50% of the invoice to ‘tax advice’, subject to obtaining guidance from their tax agent.

The following packages however do not have a ‘tax advice’ component:

  1. Power of attorney only packages
  2. Any estate planning package provided on a ‘White label’ basis; and
  3. Any estate planning package for a ‘standard’/‘no-Testamentary Trust’ will.

The case of Thomas v Pearman released in July 2017 called into question the construction of a ‘homemade’ will, which is analogous to any online services or will kits that are available without appropriate legal advice. The court described the documents in this case as an ‘egregious example of the folly of homemade wills’.

In this case, the intention of the will and codicil drafted by James Rowlands (the deceased) himself without any legal advice was held to be unclear – which the court determined was based on his lack of understanding of the drafting requirements in order to achieve his wishes and the relevant legal concepts.

Importantly, the court explained that the words of a willmaker who has made their own will may be considered ‘less strictly than in a case where the will is drawn by a skilled professional’.

There are a number of important takes outs from this case and countless similar cases, however ultimately they all highlight that there is a materially higher chance that court intervention will be required to interpret a ‘homemade’ will (meaning more costs from the estate) and then the further risk that the courts do not interpret the will in the way which the client intended. In other words – exponentially higher legal fees being incurred; often the exact opposite outcome to the catalyst for choosing to create a self drafted will in the first place.

Arguably the issues in this regard are similar to virtually every profession – why would any client bother seeing a financial planner when they can probably just google the answer? Indeed – why bother seeing a surgeon here in Australia when for a fraction of the cost you can get the job done off shore. The answer ultimately turns likely on the fact that the damage of poor advice (or no advice as the case may be) lasts longer than the memory of the cheap price.

View’s disillusionment with the number of poor outcomes we have seen with self directed estate plans was also part of the reason we have published the book ‘Estate Planning War Stories’ that includes a number of real-life ‘horror stories’ in relation to estate planning.

Ultimately, there is a multi-billion dollar industry built off the back of will kits and similar online solutions without any competent financial and legal advice.

We understand that not all clients will see the value of View’s online adviser facilitated estate planning solution. If an adviser’s clients proceed with an online alternative, we recommend that the adviser obtain some form of acknowledgement in writing that the client proceeded against the adviser’s recommendation.

View can also complete an obligation free review of the documents implemented and provide any specific guidance based on the documents signed as a service to an adviser’s business and hopefully help reduce the risks carried by clients.

Crypto currency has no actual registered ownership in a traditional legal sense.

Rather, there is a ‘private key’ (which is a number) or a ‘wallet’ (that is a sequence of letters and numbers).  The key or wallet is essentially a password via which the crypto currency is accessed.   In some respects the value of a key is analogous to physical traditional cash in hand – whomever physically has it enjoys the right to use it.

It should be noted that due to the importance of keeping keys or wallets secret, they are often encrypted.   Adopting this approach means that a further password is required when decrypting the encoded key.

For estate planning purposes, the critical aspect is to ensure succession of the key passes to the intended recipient in a confidential manner.  The transfer of this information should therefore not be set out in any detail in the will as the will, particularly if probate is obtained, essentially becomes a public document.

Without access to the key, wallet and any password the crypto currency will be unable to be accessed.  It is therefore critical that all data is kept up to date at any point and can be accessed by the intended recipient.

Generally we recommend that the necessary crypto currency information is shared via a memo of directions (explained in more detail here).

There are risks for anyone holding the confidential information – for example if a professional service firm agrees to hold the passwords in secure storage, however the client is later hacked they may seek to allege their information was not held securely with the firm.

Another approach therefore is to keep the confidential information segregated in, say, halves, with each part in a different location.  This means that 2 or more people must connect to gain access.

A specific example in this regard is that often software wallets (eg Exodus) and hardware wallets (eg Ledger) have around 20 random words as their pass phrase to restore a wallet if a password is lost.

By splitting the list of words in 2, half can be held via the law firm’s secure storage and the other half at a location chosen by the client and known to the executor. The lawyer and executor would then need to connect to access the key or wallet.

Other solutions are also emerging that trigger sharing of certain information on death (eg Email from Death) which can assist with the segregation of confidential information.

As usual however, the consequences of incapacity, as opposed to death, also need to be considered in relation to all of the abovementioned situations.

 

NI and View have partnered with myprosperity, Australia’s leading personal wealth portal to provide free, standard wills (that is, wills that do not include testamentary trusts).

This press release provides more context to the offering.

The product is designed to provide an effective and immediate solution for accountants and advisers wanting to ensure their clients have a basic level of will (but not power of attorney) documentation in place.

The full process is explained via the myprosperity portal, including the risk related issues that advisers and clients need to be aware of.

There are also tools available to help advisers deliver tailored estate planning solutions that, for example, include testamentary trusts. The legal aspects of these solutions can be delivered on a wholesale basis and are designed to allow advisers to facilitate the process, on a fee for service basis.

As the free standard wills product is available exclusively via the myprosperity portal, the starting point for advisers interested in the solution should be directly with myprosperity.

Yes, the View platform has had this functionality since it was launched.

The best process is to simply lodge a free review.

We will then loop back with the suggested next steps, depending on what is required.

If you or the client do not have access to the interview summary for the existing documents, simply request that via the free review initially – we can email that to you and then you can confirm any required changes, again via the free review service.

View carries the legal risk.

In particular:

1. View has the legal relationship with the end user client. View’s material makes it clear that the costs agreement is with end user client, not the adviser. The cost agreement is on View’s website and can be downloaded at any time, see under the ‘other helpful links’ in the bottom right hand corner of the following page: https://viewlegal.com.au/resources/

2. To the extent an adviser charges a facilitation fee in addition to View’s fixed pricing (which we fully support), it will be up to the adviser (in conjunction with their licensee) as to how this is disclosed to the client.

3. Our experience is that some dealer groups mandate that View’s invoice be provided ‘as is’ to the end client and that a separate invoice is created by the adviser.

4. Other dealer groups charge a total unbundled fee (often structured as an annual fee that includes a range of services), to the client.

5. Others adopt a hybrid approach of a total fee with each component listed on the adviser’s invoice, however the View Legal invoice is not itself physically provided to the client.

6. Included in each of View’s estate planning packages is an online meeting with the adviser (if they choose to attend), the client and one of View’s specialist lawyers to explain the estate planning documentation. After the online meeting, View issues an independent advice certificate confirming that View Legal has provided all legal advice to the client in relation to the estate planning documents. As such, all liability for the legal advice rests with View Legal and not the adviser.

7. The independent advice certificate approach has been signed off by dozens of compliance teams across the country, including 3 of the 5 largest financial institutions and the inhouse legal teams of those firms.

For completeness, we do see some licensees focus heavily on whether advisers are bundling fees (and therefore not disclosing View’s pricing), due to a concern that the approach somehow makes what the adviser is doing legal advice. While View disagrees with this conclusion, advisers must follow their licensee’s requirements.

View works with existing advisers and clients to provide strategic commercial advice where issues are in contention. This advice is generally themed around one sentence – that is ‘do whatever you can to keep this away from the lawyers and courts’.

However if the commercial approach will not work, View actively avoids any litigation work as our belief is the system is gamed to create significant upside for lawyers to be generating fees, at the direct expense of the financial and emotional wellbeing of the client. An outcome which is entirely contrary to View’s ‘why’ which is provide legal solutions that are for friends.

In other words, if we are not part of the solution, we are part of the problem.

We can however provide some suggestions as to lawyers who may be able to assist. These leads would be with the standard lawyer disclaimers that:

1. While we are not personally aware of any problems encountered with these lawyers in the past, we obviously cannot guarantee their work;

2. We cannot take any responsibility for the work of the other lawyers;

3. Rarely (if ever) are clients happy with the value delivered by their litigation lawyers.

In all circumstances our recommendations are the same for estate plans – get the model commercially right for now, and (ideally) retain sufficient flexibility for the future – knowing that the only certainty is change to the revenue rules.

In this regard, our experience is that the use of testamentary trusts gives the maximum level of flexibility that can be achieved, notwithstanding that the exact methods for restructuring the ownership of those assets over time will inevitably change.

As advisers would be acutely aware, the proposed future changes to the taxation of trusts raised multiple times since the late 1990s (such as taxing trusts as companies) are radical – to give but one example.

Conversely, with the gradual abolition of the various heads of stamp duty in various jurisdictions across Australia since 2000, a number of restructuring strategies which would have been prohibitive from a stamp duty perspective historically are now available.

For many years View has offered its free review service. Our experience is that this combined with passionate pursuit of ensuring every structure is as robust and flexible as possible at the date of implementation provides the only responsible approach.

No, the terms of the testamentary trust are generally set out in the deceased’s will.

That said, best practice is to prepare a separate ‘bank pack’ which isolates the terms of the trust from the other provisions of the will, to assist with dealing with third parties such as banks and be the sole ‘source of truth’ for the term of the trust.

SMSF

Unfortunately we are aware of many situations where trustee companies (including SMSF trustee companies) are used as corporate beneficiaries of trusts.

While this approach is normally inappropriate on numerous levels, in order to help minimise the risk of also triggering adverse Division 7A consequences the NI constitution includes a compliant loan agreement.

Yes the trust deed allows an attorney under an EPA to make a BDBN, as if it was done personally by the member.

This said, we strongly recommend this be considered as part of a comprehensive estate plan as the EPA document should also include specific provisions not included in standard government forms.

As resolutions are work required to be done by qualified accountants, NowInfinity (as a document provider) and View Legal (as a law firm) do not provide tailored distribution resolutions.

Yes.  There may be reasons, include from a tax or asset protection perspective that despite the existence of a valid BDBN, the nominated beneficiary wishes to disclaim their right to receive the death benefit.

While this right is likely available at law, for clarity, the NI SMSF deed specifically confirms that any person in whose favour a nomination under a BDBN (or SMSF Will) has been made may disclaim the whole, or any part, of the benefit otherwise payable to them.

In this situation, the trustee may pay any disclaimed benefit in its discretion in accordance with the deed and law.

The approach adopted by the NI SMSF trust deed update is that the members should only be a party where mandated by the pre-existing deed.

While it is always necessary to ‘read the deed’, certainly in recent years the requirement that all members also be listed as a party to a deed update has become less prevalent.

This is likely to be at least partly due to the fact that in most cases all members need to be a trustee or director of the corporate trustee.

Therefore, on the basis that the members are not usually a mandated party in the pre-existing deed, the NI SMSF trust deed update does not automatically include the members as parties. If the members’ consent is required to the variation (and this is selected in the interview), then the NI SMSF trust deed update will include them as parties.

This may also be relevant in situations where the trustees and members are not identical, for example sole member funds or where a trustee has lost capacity.

The Tax Office is on record as arguing that for a pension to be reversionary, all preconditions for the reversion occurring must be set out in the governing rules for the SMSF prior to a member’s death.

This means that the Tax Office argues that a BDBN cannot create a reversionary pension because a valid reversionary pension would automatically remove the deceased member’s death benefits from a fund, and therefore, any BDBN will have no assets to attach to.

The approach adopted by the Tax Office in this area has been questioned by some specialists, given that under the superannuation laws the ‘governing rules’ of an SMSF include both the trust deed and any ‘other document’ (eg including pension documents and BDBNs).

Therefore the priority between, say, the following documents would depend on the manner in which they interrelate in any particular situation:

1. The trust deed for the SMSF;

2. A valid BDBN (often non-lapsing);

3. A reversionary pension (that may be able to be varied).

Best practice dictates that all fund documents should ideally articulate which has priority and the NI and View documents adopt the approach that reflects the opinion of the Tax Office – that is reversionary pensions cannot be regulated by a BDBN.

Learn more via View’s blog post site, in particular the following posts:

http://blog.viewlegal.com.au/2018/02/scissors-paper-rock-you-win-again-bdbns.html

http://blog.viewlegal.com.au/2018/02/bdbns-v-reversionary-pensions-its-not.html

The NI template BDBNs only permit lump sum payment directions.

If the form of payment also needs to be mandated then the recommendation is that a tailored SMSF Will is prepared – see the separate FAQ in relation to SMSF Wills.

The reason an SMSF Will is recommended is due to the complex interplay between superannuation and estate planning rules and the fact that SMSF Wills are always subject to the terms of the trust deed for the SMSF.

Generally speaking, a self-managed superannuation fund (SMSF) trust deed should be updated when:

1. there is a change in the law surrounding SMSFs;

2. there is a change in the client circumstances warranting review and amendment of the SMSF trust deed; or

3. significant time has lapsed since the deed was established or last varied. In this regard, if the deed predates the July 2017 superannuation reforms, it would generally be prudent to update the deed at this juncture.

Our summary in relation to the July 2017 superannuation reforms can be found here (you will need to be logged in to view this page).

Where a single SMSF trust deed needs to be updated, this can be done through the NowInfinity platform. If bulk updates are required (e.g. more than 10 deeds) please contact us directly.

Alternatively, if you would like us to complete a review of an SMSF trust deed in the context of any specific concerns or issues you have identified, we can provide a suggested scope of work and fixed pricing upon request.

No, this is not an approach that View believes is appropriate. From a trust law perspective such consents are unlikely to be enforceable and may indeed make the prospect of dispute even more likely.

Where a company with a NowInfinity special purpose constitution is trustee for an SMSF (regulated by a NowInfinity trust deed), the Proportionate Voting Rule applies unless the directors resolve (by a proportionate vote) to apply a different voting mechanism under rule 4.2.

The default quorum for director meetings is two directors. While this can be amended on a case by case basis if there are specific concerns in the context of a particular client situation, given the liability of directors under the Corporations Act, Tax Act and SIS Act, our usual recommendation is that this provision is retained.

Ultimately the Proportionate Voting Rule is designed to provide a pragmatic ‘tie-breaker’ for decision-making where there is still a level of communication and respect between the parties.

Where the relationship between members has irretrievably broken down it is inappropriate on many levels for either party to have the ability to mandate removal of a director where that outcome is disputed by the other member. Allowing the Proportionate Voting Rule to apply in this type of situation also causes significant additional financial costs – usually to the benefit of the legal industry.

No, the SMSF deed only specifies that any limit under the SIS Act or SISR applies.  As a result, assuming the announcement from the May 2018 budget increasing the member limit for SMSFS from 4 to 6 is passed, the NI SMSF deed will allow each fund to have 6 members.

Yes.  Some minor amendments have been made to remove the requirement for SMSFs to be audited annually and to incorporate the ability for the trustee to prepare a retirement income strategy, in anticipation of upcoming legislative amendments.  The ancillary documents (such as user notes) have also been updated to note the proposed increase in the maximum number of members of an SMSF from 4 to 6.

Yes, the default position is that the proportionate voting rule applies for all NI SMSF deeds, however this can be adjusted as requested.

Note however that the proportionate voting rule only applies where the SMSF has individual trustees.

Where the SMSF has a corporate trustee, the voting mechanisms in the constitution for the trustee company will prevail. Where NI’s special purpose company constitution has been adopted, a proportionate voting rule applies to the directors.

Yes, the QROPS provisions are automatically included in all NI SMSF deed. It is important to note however that generally a deed needs to be approved by the relevant foreign regulatory authority before a QROPS rollover can proceed.

Yes, however it should be noted that the Tax Office has expressed reservations regarding the effectiveness of nominating or changing reversionary beneficiaries after a pension has commenced.

Yes the floating account and reserve have create a similar result. Both are both included based on user feedback, given earlier iterations of the product. Care must be taken whenever using any reserving account however given the Tax Office’s publicly stated views.

An SMSF Will is a written direction of the Member, which prescribes the binding terms of a payment of their Superannuation Interests following the Member’s death. In contrast, an SMSF Living Will (see separate FAQ entry) only operates in relation to a member’s incapacity.

An SMSF Will is non-lapsing and generally used in cases where there is complexity in relation to the proposed distributions which a standard BDBN does not sufficiently accommodate (for instance, multiple ‘levels’ of distribution depending on which family members survive).

SMSF Wills can be crafted as a standalone document, or ‘hardwired’ into the trust deed of an SMSF.

An SMSF Will should only be implemented as part of a comprehensive estate plan.

While SMSF Wills are not currently available through the NI platform, View works with advisers to identify what they were trying to achieve and can produce the appropriate documents accordingly. All assistance is provided on an upfront agreed scope of work and fixed pricing. If common themes emerge over time then we will look to release this product on the NI platform.

An SMSF Living Will can be an effective tool for lifetime planning. In contrast, an SMSF Will (see separate FAQ entry) only operates in relation on the death of a member.

An SMSF Living Will can be put in place by a member to provide directions in respect to their member benefits in the event of their temporary incapacity, permanent incapacity or terminal illness.

The trustee may accept some or all of the member’s request under an SMSF Living Will.

Generally it is recommended that an SMSF Living Will only be implemented as part of a comprehensive estate plan.

While SMSF Living Wills are not currently available through the NI platform, View works with advisers to identify what they were trying to achieve and can produce the appropriate documents accordingly. All assistance is provided on an upfront agreed scope of work and fixed pricing. If common themes emerge over time then we will look to release this product on the NI platform.

This said, as there is no prescribed form for an SMSF Living Will, trustees of SMSFs can in their discretion accept directions from a member in any format mutually agreed (for example by way of letter from the member to the trustee).

The alternate decision maker role is addressed by the individual member appointing an attorney pursuant to an enduring power of attorney (either a general enduring power of attorney, or a document specifically in relation to the SMSF).

The NI SMSF trust deed allows the individual’s attorney to exercise their rights as an individual trustee or director of the corporate trustee. The approach adopted by the NI SMSF deed is in accordance with the views expressed by the Tax Office in this area and is also best practice from an estate planning perspective.

No not currently, for a range of reasons, included the arguably minimal utility of the approach.

This said, the concept is on our list for future development releases, subject to user feedback.

Yes, the NI SMSF deed anticipates access to a stamp duty exemption which is currently available in NSW, Victoria, Tasmania, SA and WA. Unfortunately there is no equivalent exemption in other states at this stage.

The SMSF will is a deed which, in essence, is a more sophisticated form of binding death benefit nomination (BDBN). It allows the member to deal with broader range of issues than a typical BDBN, such as segregating particular assets for specific beneficiaries, mandating the payment method (eg lump sum or pension) and outlining multiple levels of ‘giftover’ if a particular beneficiary fails to survive. All assistance with SMSF Wills is provided on an upfront agreed scope of work and fixed pricing. If common themes emerge over time then we also proactively look to release those products on the NI platform.

Yes there is a standard BDBN which applies to the NI SMSF deed, and potentially for other SMSF deeds. A template BDBN is provided with all new deeds and deed upgrades and custom BDBNs can also be ordered through the platform. These are included as part of the overall platform subscription.

Member guardian provisions are generally rules set out in an SMSF trust deed that allow a member to appoint a representative to make decisions on their behalf in the event of incapacity or death.

The NI SMSF trust deed deliberately does not contemplate member guardian arrangements for a range of reasons including:

(a) the issues potentially addressed by a member guardian in relation to a member’s benefits are replicating solutions available via use of an SMSF Living Will (for incapacity) or a BDBN or SMSF Will (on death). Having an additional separate process for appointing a member guardian creates a significant, and unnecessary, risk for dispute to arise as to what document takes priority.

(b) similarly, in relation to day to day decision making, delegating the authority to a member’s legal personal representative (being an attorney under an enduring power of attorney or executor under a will) is the approach anticipated by the law.

(c) having multiple potential documents purporting to regulate the same issues also adds a significant layer of unnecessary complexity to the estate planning process. One simple example in this regard is the right to update a BDBN – who has that right and under what conditions as between an attorney and a member guardian?

(d) we are aware of situations where 3rd parties have refused to acknowledge the purported rights of a member guardian, due to the existence of (say) an enduing power of attorney leading to significant unnecessary costs (both emotional and financial).

(e) even where a member guardian document and enduring power of attorney expressly contemplate the rights under each document (which we have found is the exception rather than the rule), third parties will invariably want to explore the validity of both documents and often refuse to accept either (or both) – at a point in time where the ability to amend either document is either unavailable or significantly costly.

(f) while all of the above problems are bad outcomes for members and their SMSF advisers, they create significant upside for lawyers to be generating fees – an outcome which is entirely contrary to View’s ‘why’ which is provide legal solutions that are for friends. In other words, if we are not part of the solution, we are part of the problem.

While for the above reasons member guardian provisions are not currently available through the NI platform, View works with advisers to identify what they were trying to achieve and can produce the appropriate documents accordingly – that is (for example) valid, SMSF aligned, estate planning documents. All assistance is provided on an upfront agreed scope of work and fixed pricing.

No, the NI SMSF trust deed does not impose any obligations in relation to a member’s estate plan. While View is passionate about everyone having comprehensive estate plans in place, mandating this under a trust deed as part of establishing an SMSF is something we strongly discourage for a range of reasons including:

(a) who defines what is satisfactory – and does it give aggrieved beneficiaries under the estate a right to sue for a failure to discharge the requirement.

(b) it is setting the members up to fail mandating a requirement that in our experience few if any will pay any significant attention to.

(c) it creates the impression that estate planning is only important at one specific point in time (i.e. joining the fund) when the opposite is true.

(d) it is not required by the superannuation laws.

The SMSF deed allows a pension to be commenced and provides that the pension must be dealt with in accordance with the terms of the pension agreement.

Where the member wishes to have a TRIS ‘auto convert’ to an ABP, this can be achieved by under the terms of the pension agreement rather than the SMSF deed.

That said, the ATO has concerns with this approach and specialist advice should be obtained before relying on the strategy.

As a starting point, it is important to firstly check the following locations for the original, or any copies of the, fund deed:

1. All current and previous accountants, lawyers and financial planners who have had any involvement with the SMSF;

2. The SMSF’s financial institutions – for instance, anywhere a bank account has ever been opened for the SMSF;

3. The Titles Office, if the SMSF has ever owned real property in jurisdictions that allow a trust to be disclosed on title; and

4. The law firm or provider who established the SMSF.

If all avenues to try and locate the original fund deed are exhausted, a deed of variation and ratification can be prepared to ratify and provide replacement rules for the fund, however this approach can have potentially significant tax, stamp duty, trust law and SIS Act ramifications.

The alternative approach to apply to Court for a reconstruction of the terms of the SMSF.

As a starting point, we recommend the clients contact the firm who prepared the current deed and request their comments on the procedure to be followed to update the document, given the failure to have a power for the trustee to vary the deed would appear to be a significant oversight.

Subject to any feedback from that firm, View can provide a proposed scope of work and fixed pricing to advise on the steps that may be able to be taken to rectify the issue.

Under an NI constitution, if there is at least one remaining director, that person can exercise their power under the constitution to appoint a replacement director (being the legal personal representative of the incapacitated director).

If the incapacitated director was the sole director, then the shareholders would need to pass a resolution to appoint the new director, again being the incapacitated director’s legal personal representative. If the incapacitated person was a shareholder of the trustee company, their attorneys would vote on their behalf in appointing the replacement director pursuant to the enduring power of attorney.

Generally a review of the whole deed is required to confirm whether there are any other provisions outlining the process for specifying the ‘approved form’.

This said, generally where the wording ‘in a form approved by the trustee’ is used, our experience is that the form of the document is approved either on establishment of the fund, or (more often) at the time of preparing a BDBN.

The approval of the form by the trustee would be by either providing members with (say) a template issued to the trustee on establishment of the fund, the trustee resolving to approve a form and circulating that template or by resolving to approve a completed BDBN submitted by a member.

This means that even if a template form was created on establishment of the fund, this of itself will be unlikely to be sufficient to comply with the deed, unless the trustee took steps to formally approve it.

Where the members are spouses involved in finalising a property settlement, there may still be merit in producing and signing a BDBN now and submitting it to the trustee – in theory the interest of both spouses should be aligned about the ability to update all aspects of their respective estate plans (i.e. including a BDBN), despite their relationship breakdown.

Alternatively, steps could be taken to adopt a replacement deed which removes the wording around the BDBN needing to be in an approved form and simply requires the trustee to accept any BDBN provided by a member. This approach would still require the trustees to agree on updating the deed however.

Trustees of SMSFs are required to keep the money and other assets of the fund separate from any money and assets that are held by the trustee personally, with a failure to do so potentially leading to fines and other penalties (see Regulation 4.09A).

The Tax Office generally considers this requirement means trustees of SMSFs should ensure that both the trustee and the fund be disclosed on title, and best practice is to adopt this approach.

However in many cases, disclosure of the trust relationship is not possible. For example, most cryto-currency exchanges only record legal ownership, not beneficial ownership.

Generally the Tax Office’s preferred position in these cases appears to be to have an SMSF document the fund’s ownership of an asset by using one of the following:

1. a caveat;

2. signing a ‘declaration of trust’;

3. implementing a ‘legal instrument’.

Each of these approaches have potential issues, for example:

1. An owner of a property may be prevented from registering a caveat where they are already registered on the title;

2. In many states there is a potential stamp duty risk in signing a declaration of trust – and in any event, the trustee will not in fact be declaring a trust over the asset;

3. The ‘legal instrument’ approach is unclear.

Practically, we see some SMSFs sign a short form document titled an ‘Acknowledgement of Trust’, which simply confirms formally that the trustee is the registered owner of the property, holding it on trust for the fund, despite this fact not otherwise being recorded by the asset register.

While the document arguably does nothing that the trustee minutes on acquisition and other evidence that would normally exist confirms, it does provide self-serving (and hopefully contemporaneous) evidence to the SMSF’s auditor, the Tax Office and any trustee in bankruptcy.

Structuring

As there are no risk issues attached to being a settlor of a trust, our general recommendation is that the adviser ordering the trust provide the settlor. This helps provide a direct point of contact for the client in the future as well as minimising the delays in establishing the trust. In particular, the trust can be ordered and created almost instantaneously adopting this approach.

In saying this, VL can also provide a settlor as required and has created a special purpose company for the sole purpose of settling trusts.

There are additional steps and separate fixed pricing which applies in this regard, and for those interested, please contact VL directly.

As trust deeds will be required to be physically sent when VL is the settlor, there are also delays in establishing trusts where VL is the settlor due to the postage time involved.

Please note that if the intention is to avoid paying stamp duty on creation of the trust (for example for NSW or Victorian based clients) by having VL act as settlor it is necessary to ensure that the:

1. jurisdiction of the trust is a state that does not impose duty on trust establishment;

2. trustee will physically sign the deed in the same jurisdiction as the trust is established.

Unfortunately employee share schemes are outside our areas of specialisation.

Upon request however, we may be able to provide you with the names of some firms who may be able to assist.

Unfortunately assignments of intellectual property are outside our areas of specialisation.

Upon request however, we may be able to provide you with the names of some firms who may be able to assist.

Yes, from time to time we have seen certain banks mandate that a form of LRBA trust deed is used which allows multiple trusts to be established under a single trust instrument.

While this approach is arguably effective from a trust and superannuation law perspective, our view is that it unnecessarily over-complicates the arrangements when dealing with third parties (such as the Titles Office and for stamp duty relief purposes) and any cost savings are marginal at best. There are also potential asset protection issues created by the approach.

Our general recommendation is to have a separate deed is used to establish each new LRBA borrowing arrangement.

Generally, all of the advantages of a trust owned arrangement are the same as self owned insurance policies, although the insurance provider should be asked to confirm whether an exiting owner (for reasons other than an insurable event) can in fact take their policy. Often this is only in fact possible with a self-owned policy.

Other than this, the main disadvantages of a trust owned arrangement tend to be the initial cost of establishment, the ongoing costs and complexities of management of the structure. Also, generally, all of the advantages of an insurance trust arrangement can be achieved via self owned policies, using a ‘hybrid’ buy sell deed (see page 2 of the flyer attached).

The main disadvantage of a self owned arrangement is the inability to have the policies managed centrally.

The insurance trust itself is established as part of the buy sell deed itself, in parallel to the insurance being written.

Ideally any shareholder, unitholder or partnership agreement should interact seamlessly with the buy sell deed.

In these circumstances, it will generally be far more cost effective and risk appropriate to establish a new entity.

Our approach is usually to prepare a separate deed of change of trustee and deed of variation, rather than amalgamating the two changes into a single document.

This is for a number of reasons, including:

1. The parties to each change and the power under the trust deed being relied on for the changes will usually be different for each type of change being made;

2. As the deed of variation will generally be the document referenced more regularly in the future by 3rd parties, it minimises confusion having the new trustee the party signing the document; and

3. The processing requirements for each document will usually be different (for instance, the deed of change of trustee will usually need to be stamped while the deed of variation may not require stamping).

The approach adopted is to retire all of the current trustees and appoint new trustees in their place (including re-appointing any continuing trustees). The rationale for this approach is that:

a) the conservative view is that the role of trustee is an office made up of all persons acting from time to time;

b) this means that even if there are ‘continuing’ individual trustees, they should be retired and reappointed as part of any change of trustee process;

c) many third parties require this approach in order to register asset transfers to the new trustee, even though it might be arguable at law that it is unnecessary; and

d) in particular, most Land Title Offices mandate that change of trustee deeds be consistent with any asset transfers which are required as a result of the change of trustee. That is, the transfers must be made by all previous trustees as transferors to all new trustees as transferees (regardless of whether some of them are continuing).

Unit Trust

We suggest that clarity is obtained from the NSW Office of State Revenue to confirm their exact concerns.

A suggested email to send directly to the NSW Office of State Revenue is set out below, with the approval letter from the NSW OSR also attached.

++++

Dear [#NSW OSR insert contact]

We refer to your email below in relation to the attached deed.

We confirm the trust deed is in accordance with a deed the OSR has previously confirmed satisfied its requirements to be a fixed trust, in accordance with the attached letter dated 16 December 2016.

Would you please confirm that in accordance with the private ruling, the deed here will satisfy the definition of a ‘fixed trust’ for land tax purposes?

Alternatively, please confirm the exact concerns with the deed that need to be remedied for the ‘fixed trust’ requirements to be satisfied.

Regards

Unit trust

The unit trust deed provides each unitholder with an entitlement to an agreed percentage of the trust’s income and capital (based on their percentage unitholdings), however the trust is not a ‘fixed trust’ under the Tax Act and does not satisfy the requirements to be a ‘fixed trust’ for NSW land tax purposes either. The deed provides a reasonable degree of flexibility for allowing the structure to be changed in the future as required (for instance, a broad power for the trustee to vary the provisions of the deed).

Fixed trust

This deed is designed to satisfy the Tax Office requirements to be a ‘fixed trust’ under the Tax Act. This is relevant in relation to issues such as determining which tax loss rules apply to the trust under the Tax Act and ensuring the income on any distributions paid to a unitholder which is an SMSF is not treated as non-arm’s length income. However, you should note that the current views of the courts and the Australian Taxation Office suggest that it is very difficult, and may be impossible, to satisfy the definition of a fixed trust for tax purposes. In an attempt to satisfy the strict requirements of a fixed trust, the trustee has limited flexibility in relation to the unitholder entitlements in the trust.

NSW land tax fixed trust

The NSW land tax fixed trust satisfies the relevant criteria to be a ‘fixed trust’ under the NSW land tax rules, and would generally only be used if the trust is acquiring land in NSW in order to access concessional land tax rates. The deed has been approved by the NSW Office of State Revenue and again, contains limited flexibility in relation to the unitholder entitlements in the trust. This deed is also designed to ensure the trust should be a ‘fixed trust’ for tax purposes.

The amendments set out in the deeds of variation we prepare generally should not amount to a tax resettlement of the underlying trust for tax purposes given the current approach of the Tax Office, as the variations are usually largely administrative in nature.

When more fundamental terms of the trust deed are amended, such as altering classes of beneficiaries, this may be more problematic from a tax resettlement perspective and specific advice should be obtained, before proceeding.

There may be other relevant factors for any specific trust we amend which may change the above comments and we can provide a proposed scope of work and fixed price to provide more detailed advice on a case by case basis, if requested.

The stamp duty consequences of any variation must also be considered, with different rules apply in each state.

NI’s hybrid unit trust is a non-fixed unit trust for tax purposes. A hybrid unit trust is a type of trust where units are issued to certain key beneficiaries to represent their interest in the trust. A hybrid trust effectively blends characteristics of unit trusts and discretionary trusts into one arrangement.

The hybrid unit trust gives the unitholders a fixed entitlement to capital, but allows income to be distributed to a range of potential beneficiaries. In particular, the trustee has a discretion to distribute income to other ‘Related Beneficiaries’ of each named unitholder (at the request of that unitholder) rather than distributing the income to the unitholder themselves.

This structure is generally only used in tightly held groups or family investment activities.

While there can be complications arising where trust deeds distinguish between income and capital entitlements (explored in other FAQ posts), those complications are largely circumvented in NI’s hybrid trust deed as any decision to allocate income to a beneficiary other than a unitholder requires the prior consent of that unitholder.

There are also a number of potential tax and commercial issues that can turn on whether a trust is a fixed or non-fixed trust and the nature of the rights of each unitholder. We recommend specialist advice is therefore obtained before a deed is established.

View, through the NI platform, works with advisers to identify what they were trying to achieve with hybrid trusts and can tailor the deeds accordingly. All assistance is provided on an upfront agreed scope of work and fixed pricing.

The NSW OSR generally does not have any discretion to refund amounts for prior year assessments if the trust did not satisfy the fixed trust requirements at the point in time of the assessment. Therefore lodging submissions in relation to an amended trust deed usually only ensure concessional treatment in future year assessments.

The process for having a trust deed assessed as a fixed trust for land tax purposes primarily consists of lodging a copy of the amended deed with the NSW OSR for their review.

We confirm that under our trust deed, a unitholder’s liability is limited to the issue price for their units and unitholders are not required to indemnify the trustee for the debts of the trust.

The relevant clause in the deed reads:

Notwithstanding any other provision of this document, no Unitholder is under any obligation to indemnify the Trustee or any creditor of the Trustee for any of the liabilities of the Trustee in relation to or arising in connection with the Trust Fund and any alleged right of indemnity (whether by way of subrogation or otherwise) is expressly excluded.

Yes, our unit trust precedent allows additional units to be issued by the trustee to new unitholders at any point in time and sets out the terms on which this may occur. As usual, advice should be obtained about the tax and stamp duty consequences of any allotment.

The products currently available are as follows:

1. A unit trust deed – this is not a fixed trust for tax purposes or NSW land tax purposes;

2. A fixed unit trust deed – this is a fixed trust for tax purposes but not for NSW land tax purposes;

3. A NSW land tax fixed trust – this is a fixed trust for both tax and NSW land tax purposes;

4. SUIT trust, 13.22C trust and hybrid trust – these are neither fixed trusts for tax purposes or NSW land tax purposes.

Please note that in order to satisfy the requirements of the NSW State Revenue Office, the NSW land tax fixed trust contains restrictive provisions which are unable to be subsequently amended or removed from the deed, so this product should be used with care.

The issues in relation to hybrid trusts, or unit trusts with special classes of units are complex and the subject of focus by the Tax Office. View can assist with establishing hybrid trusts and unit trusts with special unit classes, however the starting point is always to understand what the objectives of the client are. Some of the factors that need to be considered include the:

1. fixed trust rules (including with reference to capital gains tax event E4 and the trust loss rules);

2. land tax rules, particularly in NSW;

3. approach of the Tax Office to hybrid trusts post the Twiggy Forrest decision;

4. NALI (ie non arm’s length income) provisions where SMSFs are unitholders.

In addition, the objectives intended to be achieved by many of the ‘hybrid’ unit trust structures View has been asked to assist with historically can be satisfied by establishing a unit trust with the units owned by discretionary trusts, without needing to implement a tailored ‘hybrid’ trust deed.

The creation of trusts with different classes of income and capital rights is also problematic due to the fluid nature of the distinction between ‘income’ and ‘capital’ under trust law. For instance, most deeds provide the trustee with discretion to determine whether amounts are treated as income or capital in order to ensure they can deal with taxable amounts such as capital gains in an effective manner. While these issues do not arise in the context of income and capital rights that may be allocated to shares in a company, they can create significant complexities where there is a desire to create a unit trust with different classes of income and capital units.

These arrangements can also trigger a number of other adverse taxation consequences that should be considered on a case by case basis, such as the operation of the value shifting rules under the Tax Act.

View, through the NI platform, works with advisers to identify what they were trying to achieve with hybrid and special class unit trusts and tailor the deeds accordingly. All assistance is provided on an upfront agreed scope of work and fixed pricing. If common themes emerge over time then we will look to release products on the NI platform.

Yes.

The letter is available at the following link.


The information in this FAQ is of a general nature, not intended to be specific professional advice.

Please seek the opinion of a professional to advise you for your situation.