Trusts, including family trusts and unit trusts, are useful mechanisms to provide asset protection both throughout life and in estate planning, and also allow greater flexibility in tax planning. However, as RMB Lawyers Wills & Estates & Disputed Wills Division explains, it pays to understand the nature of perpetual succession:
Perpetual succession is the continuation of a corporation’s existence despite the death, bankruptcy, loss of capacity, or change in membership of any owner or member.
Certain trusts provide scope for perpetual succession by replacing a human trustee with a corporate trustee.
This will not cause a change in who the equitable owners of the trust are. However, in NSW if you appoint a new trustee, you may trigger a liability to pay ad valorem stamp duty on the market value of the assets held in the trust (approximately 4.5% of the value of the asset). This can be a significant cost, particularly with shares and real estate.
Fortunately, there are often stamp duty exemptions in circumstances such as these under Section 54(3) of the Duties Act 1997 if you can show that:
(a) none of the continuing trustees remaining after the retirement of a trustee are beneficiaries under the trust, and
(b) none of the trustees after the appointment of a new trustee is or can become a beneficiary under the trust, and
(c) the transfer is not part of a scheme for conferring an interest, in relation to the trust property, on a new trustee or any other person, whether as a beneficiary or otherwise, to the detriment of the beneficial interest of any person.
If you are unable to evidence the above, at ad valorem duty applies to the transfer.
We recently dealt with a matter in which a local couple acted as trustees of their Family Trust. They, together with their children, were also beneficiaries. The trust owned a large and expensive property in NSW.
Mum passed away, and Dad removed her as one of the trustees of the NSW Family Trust. But he is a ‘continuing trustee’, so, Section 54(3)(a) is not satisfied, and Dad has to pay full ad valorem stamp duty on the Deed of Variation of his Family Trust to change the trustee. That is roughly 4.5% of the market value of the property.
Instead, Dad should have:
- incorporated a new Company
- signed an irrevocable minute so that the company is never a beneficiary
- make the company the sole trustee of the trust.
If you would like to speak to a lawyer who specialises in perpetual succession, please contact our office to arrange a free consultation. You can contact us by by phone or our 'Ask a Question' tool on our website.