Review of a Family Trust Deed

Due to the complex nature of Trust Variations this form is completed under the advice of your Accountant, Adviser or Lawyer. Civic Legal can not accept instructions otherwise. Brett Davies Lawyers is a private law firm. Civic Legal is a national law firm serving all states and territories of Australia. We operate out of Perth, Western Australia.

Feel free to read our Family Trust Manual.

Accountants, Advisers and Lawyers are licensed to copy this Instruction Form.

Please print the form below then post or fax it to us at:

Civic Legal
Level 2, 11 Mounts Bay Road, Perth, Western Australia
Tel: 08 9460 5000 Facsimile: 08 9460 5001

Your Adviser cares about you

Your Adviser is ever vigilant to ensure that your legal documents continue to operate in the current taxation climate and are in tune with your wishes. Just like your Will, all legal documents need to be reviewed annually by you and your adviser and every 4 years by your lawyer - more often if your circumstances change such as death or divorce. Your Adviser will want to review the document for a number of reasons. This checklist just deals with the legal side of a review of a Discretionary Trust.

We provide you and your Adviser with a written report on your Trust Deed. We are signing off on the written report. Our professional indemnity and reputation is contained in the report. Our report must be correct in all respects. We therefore ask that you spend time with your adviser to ensure that all questions are answered and are correct to the best of your knowledge.

Details of the Appointor and Trustee

The full name of the current Appointor/Guardian of the Family Trust	Full Name   First Name Middle Name Sir Name
The current physical address of the Appointor/Guardian of the Family Trust	Address Suburb State P/Code
The current postal address of the Appointor/Guardian of the Family Trust	Address Suburb State P/Code
The full name of the current Trustee of the Family Trust	Full Name   First Name Middle Name Sir Name
If the Trustee is a company, what is the A.C.N. number?	ACN
The current physical address of the Trustee of the Family Trust	Address Suburb State P/Code
The current postal address of the Trustee of the Family Trust	Address Suburb State P/Code

The Purpose or Use of the Family Trust

The Family Trust is set up for the following reasons (you can select more than one):

To hold shares in a family business

To hold units in a unit trust

Other reasons:

Control of the Family Trust after the current Appointor dies

When you die your family trust continues on. The assets in your trust don’t belong to your estate. Your Will can not deal with the assets in the trust. You may wish to leave a particular asset to a person after your die. If the Trust owns the asset then such a gift fails in your Will.

The Trustee is a mere puppet of the Appointor. The Trustee can be sacked at the whim of the Appointor.

Your have the right to ensure that the control of the Trust passes to the persons who you want to have the assets in the trust. For example, some people have their spouse and after they both die their children as Appointors/Guardians.

Some trust deeds say that the Appointor/Guardian is as stated in your Will. This is no longer a popular practice. Wills often can’t be administered until your executor obtains Probate from the Supreme Court. Wills can also be challenged. Thus the Family Trust may not be able to operate for an extended period after you die. Further, as you change your Will from time to time you may fail to address in your Will who the Appointor/Guardian will be. Even a Testamentary Trust in your Will can’t help you here.

Your Will is designed to give away the assets that you own. To try and use your Will to effect other matters, such as Family Trusts, is unwise.

A major benefit of Family Trusts, if they are structured correctly, is that they can’t be challenged via the Inheritance Act. Wills are always subject to challenge under the Inheritance Act.

Who do you want to be the Appointor after the current Appointor dies?

Please make a selection .. My Spouse My Children Other

What is their full name(s)?

When all of the people you have mentioned above are dead, who would you then like to be the Appointor?

Please make a selection .. My Spouse My Children Other

What is their full name(s)?

Majority of Appointors overriding the wishes of the minority

Over the 80 year life of your Family Trust the trust may have 3 or more Appointor/Guardians at one time. If this is the case then there is opportunity in your trust for a majority of Appointor/Guardians to give themselves all the proceeds of the trust. This leaves the minority with nothing.

Your trust may need to be amended so that the Appointor/Guardians work, at all times, unanimously.

Would you like the majority of Appointors to be able to take all the proceeds of the trust over the wishes of the minority?

Please make a selection ..... Yes No I’d like the lawyer to advise me about this

Assets outside of your Family Trust and Estate Planning issues

The assets in your Family Trust do not form part of your Will. The Family Trust continues on after you die. Those assets that you have in your own name (outside of the trust) are subject to Capital Gains Tax and other defacto death duties. There are weapons at your disposal to dampen the effects of Capital Gains Tax including 3 Generation Testamentary Trusts, Superannuation Testamentary Trusts, Executor’s streaming powers in your Will, Mutual Power of Attorney and Cascading Power of Attorney.

Is there a Valid Will in existence?

Please make a selection ..... Yes No I’d like the lawyer to advise me about this

Does the Will contain a Three Generation Testamentary Trust?

Please make a selection ..... Yes No I’d like the lawyer to advise me about this

Getting a loan from the bank

Banks are forever asking clients (who want a loan) to get a certificate from their lawyer to say that the Trustee of the Family Trust has certain powers.

The Trustee has the power to appoint a lender as an attorney for a limited power of attorney.

The Trustee has the power to enter into a transaction even if it constitutes a conflict of interest.

The Trustee has all the powers of a natural person without limitation.

Please make a selection ..... Yes No I’d like the lawyer to advise me about this

Complete this section only if you wish to change the Trustee

Although the Trustee may be a "puppet" of the Appointor or Guardian it still carries out the important role of administration. Your adviser may feel that it is necessary or desirable to change the trustee of the trust.

A change in the Trustee is implemented according to the Trust Deed. Most Trust Deeds usually reserve the right to remove the existing Trustee and appoint a new Trustee at the whim of the Appointor. If this is not the case then the Trustee may be able to resign under the removal provisions of the Trust Deed.

If the Trust Deed is silent on the appointment of a new Trustee then in most states (e.g. section 7 of the Trustees Act) allows the person nominated in the Trust Deed to appoint a new Trustee.

Who you appoint as the new Trustee is in part decided by the person you can not appoint. As strange as it may sound some Trust Deeds are still drafted so that a beneficiary can not be a Trustee. Even worse sometimes the Appointor or Guardian can’t be a Trustee of the Trust.

If your records are in good order, the stamp duty payable on a change of Trustee is generally only nominal in most states (e.g. section 73AA(1)(a) Stamp Act 1921).

Only complete this section if you wish to change your Trustee

The full name of the new Trustee of the Family Trust	Full Name   First Name Middle Name Sir Name
The current postal address of the Trustee of the Family Trust	Address Suburb State P/Code
If the new Trustee is a company, what is the A.C.N. number?	ACN
The current physical address of the new Trustee of the Family Trust	Address Suburb State P/Code
The current postal address of the new Trustee of the Family Trust	Address Suburb State P/Code

Note: If you change the Trustee you may need to transfer assets and ask the bank to amend mortgage deeds

Specified Beneficiaries

Specified Beneficiaries are sometimes called "Takers in Default", "Primary Beneficiaries" or "Specific Beneficiaries". These people also have no right to request anything from the Trust Deed. However, if you forget to distribute the income from the Trust Deed for the last financial year or you do not distribute after the Trust ends (usually 80 years) then the Specified Beneficiaries take the proceeds. To be technical the Specified Beneficiaries’ interest is a defeasible interest or a vested interest subject to the divestment.

Often the Specified Beneficiaries are the "children of Mr Client and Mrs Client". Sadly the couple may have broken up years ago and had more children to other partners. This is bad luck. The Commissioner of State Revenue decreed years ago in most states that if you now want to change your Specified Beneficiaries then you will have to pay ad valorem (full) stamp duty. You are generally stuck with your Beneficiaries and Default Beneficiaries.

If you need to amend the Beneficiaries for Centrelink purposes then let us know.

Can the Family Trust be amended?

Not all Trust Deeds can be varied to take account of changed family circumstances or take the benefit of changes to the law. Such changes may require restricting old powers, granting new powers to the Trustee and adding new beneficiaries.

Whether desired changes can be made for your Trust Deed depends upon a number of factors including the limitations imposed by the Trust Deed, limitations imposed by the very nature of the Trust itself, limitations imposed by creditors and limitations imposed by the potential imposition of stamp duty and Capital Gains Tax on each Deed of Variation.

As is sometimes the case with pre 1984 Family Trust Deeds there may be no power of amendment at all. In this case subject to any amendment by the beneficiaries under the rule of Saunders v Vautier the Court proceedings are commenced to seek its consents to the amendments.

If the beneficiaries are sui juris (Latin for over 18 years and not an idiot) then the beneficiaries may together vary the terms of the trust in an application of the rule in Saunders v Vautier. This is often difficult given that usually, the Trust Deed contains 1000s of distant family members.

Creditors

Most mortgages and charges given by the Trustee of the Family Trust require that the Trust Deed can not be amended without the creditor’s prior written approval.

Any amendments must be approved in writing by a creditor? This question only applies if the Trustee or Trust Fund assets are subject to a security. If you leave this clause unanswered you are declaring that no approval is necessary.

 Pre 1994 Deeds

Most Trust Deeds, especially if last amended before 1993, need amending, so far as is possible, so that income, like franked dividends, is treated in the hands of the beneficiary in the same way as if they had been received directly (Income Tax Assessment Act ("Tax Act"), sections 160AQV to 160ARD and Taxation Ruling TR 92/13)

We will advise you.

Tax Ruling TR 92/13’s effect on Streaming Provisions

Your Family Trust should ensure that income distributed to a beneficiary retains the character it had when it was derived by the trustee. Whether the allocation of say a franked dividend income to one beneficiary to the exclusion of another is effective for tax purposes depends on the terms of the trust instrument. It also depends on the ability to trace the source of the distribution made to the beneficiary. In the latter case, this would require records to be maintained which separately account for different classes of trust income (Taxation Ruling TR 92/13).

In particular clause 8 of Taxation Ruling 92/13 states that the trustee should specifically place different classes of income into separate income accounts. This is so that it is possible to trace the source of each trust distribution to a particular beneficiary or to a particular class of beneficiary. Further:

Unless the trustee clearly reflects what he or she has actually done in accumulating the trust income and in distributing it to particular beneficiaries, it will be most difficult to establish, after the event, what class of income was distributed to particular beneficiaries. Clause 8(b) Taxation Ruling 92/13

We will advise you on whether your Family Trust contains general "Streaming provisions".

Dealing with Prescribed Payments

Under Prescribed Payments (often relating to contractor income) tax is usually paid at a lower rate. Sometimes Provisional Tax is payable on this type of income. Certain beneficiaries may be able to:

• benefit from this income more than others
• use Prescribed Payment System deductions to reduce the provisional tax

We will advise you on whether your Family Trust deals with "prescribed payments".

Franking Credits

At times your trust may include gross income from franked dividends (for example, section 160APQ of the Tax Act). A resident beneficiary in your Family Trust (other than a trustee of another trust estate) is entitled to a franking rebate if:

• a share of net trust income in included in the assessable income of the beneficiary; and
• some or all of that share of net trust income is attributable to a franked dividend included in the assessable income of the trust estate.

Such tax credits require special treatment as, unlike PAYE and Prescribed Payment credits, franking and foreign tax credits are not refundable. A beneficiary can only use these credits in the tax year in which they are distributed: Section 160A of the Tax Act.

Clause 6 of Taxation Ruling 92/13 states that:

Notwithstanding wide discretionary powers being conferred on a trustee, a trustee’s discretion to selectively allocate dividend income to a beneficiary to the exclusion of another may be fettered by the terms of the trust or by trust law operative in the relevant jurisdiction. The presence of a valid clause in a trust deed which expressly empowers a trustee to selectively allocate particular types of income to beneficiaries would remove uncertainty about the trustee’s power in this respect.

Your accountant may suggest that you distribute that part of the net income to those beneficiaries who are able to take the greatest advantage of franking, foreign tax and any other non-refundable tax credits and rebates available to the trust. Those beneficiaries who have made a loss or are at a low tax rate (especially if lower than the company tax rate of 36%) may derive little benefit from these credits. (The law in this area is changing once again shortly.)

We will advise you on this.

Attribution relating to distributing capital gain to beneficiaries

When the Trust derives net capital gain in the net income of the trust by virtue of section 160ZO then the Trustee needs the power to distribute that part of the net income to certain beneficiaries. The beneficiaries are treated by the Commissioner as having accrued a capital gain (via Taxation Ruling IT 2328, paragraph 13). It may be that one beneficiary has carried forward capital losses and another has carried-forward revenue losses. In this case there are tax advantages in distributing the net capital gain to the beneficiary who has suffered the prior capital losses.

For many pre-1993 Family Trusts the Commissioner, on the above facts, may take the view either:

• both beneficiaries are treated as having been presently entitled to a proportionate amount of the net capital gain and other net trust income; or
• the net capital gain loses it character and therefore no part of the trust distribution is characterised as being a net capital gain.

Both outcomes are generally unfavourable.

We will advise on whether the Family Trust deals with Attribution relating to distributing capital gain to beneficiaries.

The ongoing extension of the Capital Gains Tax regime

Professor Bernard Marks (Research Professor of Taxation Law, Melbourne University) states that:

Although there is some judicial authority to support the view that moneys paid into a trust fund from different sources are not mixed but retain their separate character until they are exhausted, the cautious trust lawyer would want to ensure that a modern trust deed would allow (or possibly even require) the trustee to account separately and keep separate any funds received from different sources. CCH Federal Tax Commentary, Full Text, paragraph 987-072

We will check your Trust Deed for the following:

• Is the Trustee allowed to account separately for income from the following sources?
• Income having an allowance for depreciation (inclusive of depreciation of buildings and plant and equipment
• Income from Superannuation investments or annuities
• Income from deceased estates and trusts (including testamentary trusts) whether trading, investment or otherwise
• Credit trading income, interest, primary production income, rents, royalties or property income
• Income from personal exertion
• Foreign source income

Expenses of the Trust allocated against income from different sources

Subject to your Adviser’s view we also suggest that trust deeds benefit by allowing the expenses of the trust to be allocated against the income from the different sources. The accounting (for income and expenses) should apply separately to both accounting income (for trust accounting purposes) and for the net income (for tax purposes).

We will check to see if the Family Trust allows expenses of the trust to be allocated against the income from the different sources.

Distributing different parts of the net accounting income and the net income separately to certain beneficiaries

Trust Deeds need to allow the trustee to distribute the different parts of the net accounting income and the net income (for tax purposes) separately to certain beneficiaries or even to accumulate such income. Such Deeds should also specify that if any income of any source is accumulated the trustee could keep the accumulated accounting and net income in separate categories.

What is the benefit? There are many benefits. For example, accumulated net income from franked dividends (which are subject to section 99A but with allowance for imputation rebates) are distributed without any further tax to beneficiaries (resident and non-resident alike).

Does the Family Trust Deed allow the Trustee to distribute the different parts of the net accounting income and the net income (for tax purposes) separately to certain beneficiaries or alternatively to accumulate such income? We will check this.

Mum & Dad as Trustees

Many older Family Trusts prohibit you distributing to Trustees. We will check this.

Undated Family Trusts

If the Family Trust is undated then you may have breached the "Rule against Perpetuity". This rule requires the trust to vest (finish up) within 80 years of the date the trust was created. We will check this.

Other Instructions (attach a separate sheet if more space needed)

Can I amend my Family Trust later?

Irrespective of what income your Family Trust is currently getting it is still important to amend problems with the family trust as soon as possible. This is for 2 reasons.

• If it is not already the case, at any time in the future your family trust can derive many different types of income.
• The law currently allows you to make the above improvements to your trust. The laws may change in the future (see Taxation Ruling IT 2121) prohibiting you from so amending the trust deed. Already changes to the Stamp Duty legislation (through out Australia) have made it difficult to amend the class of beneficiaries who are takers in default.

Please charge my credit card for $1,100
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Please limit the scope of the review to the enclosed Instruction to amend the Family Trust form. I understand that you charge a "usual" fee of $1,100 to study the Trust Deed, conduct the review and provide us with your written report. and then amend the Trust Deed.

This cost does not include discussing the matter with advisers (this is done with a signed Retainer Agreement). If the cost to review the Deed is over $1,100 I understand that you cease work on the file and provide me with a Retainer Agreement and where possible a quote or hourly fee. If I do not accept this then you will return the original deeds and $1,100 to me without providing a report or any advice.

Please recommend in writing the current changes, in your view, required to update the Family Trust.

Please identify and examine in detail the limitations imposed by the clause providing the power of amendment contained in the Trust Deed. Please advice if any other clauses of the Trust Deed impose restrictions that restrict your suggested amendments.

You are authorised to share information and documents with my Financial Adviser, Accountant and other professionals as they and you need to.

My adviser’s details are:

Name
Address
State
Post Code
Facsimile Number

Thank you for your assistance in this matter. Please ring me if the review will take longer than 2 weeks to complete after you receive these instructions and payment.