If you have a family or discretionary trust, it’s about time you updated it.
In the ever-evolving landscape of wealth management and asset protection, staying ahead of the curve is paramount. Just as technology continually refines our tools, so should your financial instruments adapt to the latest advancements.
When you first established your discretionary trust, it was a strategic move driven by purposes such as asset protection, tax optimisation, or laying the foundation for a robust family wealth structure. However, as time progresses, so do the demands of an effective trust strategy. In this blog, we’ll examine the key five reasons you should update your trust deed.
1. Secure a succession plan for appointors
The role of the appointor within a trust is pivotal. They can change the trustee of the trust and the rules of the trust. Without a clear succession plan (spanning at least two generations), unforeseen complications might arise if the appointor passes away, faces incapacitation, or encounters bankruptcy. By incorporating a line of successors for the appointor, an updated deed can prevent such uncertainties.
2. Ensure continuity with successor directors
It is important to ensure that any trusts have a corporate trustee. If they don’t, the individual trustees are exposed personally to any litigation and they could lose their family wealth. It is also essential that the directors of a corporate trustee have successor directors in place in the event that they become sick, disabled, die or are litigated against. The director may resign from their role and a close family member or associate can take their place to ensure business continuity. Through an update to the company constitution for your trustee company, you can nominate successor directors to ensure a smooth transition of directorship.
3. Safeguard your family’s “bloodline”
Traditional trust structures might not fully secure assets for your bloodline beneficiaries. Modern discretionary trust deeds offer comprehensive protection, preventing the access of trust assets by non-bloodline beneficiaries (E.g. de facto partners) in the event of separation or dispute.
4. Easy of use and administration
Each year, the trustee must prepare detailed trust distribution resolutions detailing how income from the trust is to be distributed amongst beneficiaries. Failure to distribute all income properly means that there will be 47% tax to pay. With a modern deed linked to corresponding trust distribution resolutions, the task is more effective, quicker and less prone to costly tax penalties.
Read more: Avoid extra tax with a trust distribution resolution
5. Address regulatory changes: New Accounting Standards explained
Each State has put in place a 2% land tax surcharge on property held in a discretionary trust that does not specifically exclude foreign person beneficiaries.
Business entities must prepare detailed “general purpose financial statements” if their constituting document mandates compliance with Australian Accounting Standards. This applies to constituting documents (for example, a trust deed, company constitution, partnership agreement, SMSF deed) created after July 1, 2021, or amended after that date without excluding the requirement. As a result, the process of preparing “general purpose financial statements” will be more complicated and expensive.
Therefore, it is wise to amend your trust deed (and related documents) to eliminate the need for financial statements complying with Australian Accounting Standards and avoid additional costs.
By updating your family/ discretionary trust deeds, you’ll actively safeguard against potential legal complications arising from outdated provisions.
We are committed to optimising your family succession, asset protection, and trust estate planning strategy. Our team of expert advisers are here to assist you in navigating these complexities and tailoring a trust deed that aligns with your aspirations. Contact us for assistance!
About our adviser: Michael Fox has been dedicated to the success of his clients, devising comprehensive wealth strategies for both personal and business growth for over 4 decades. With extensive expertise in business governance and family business succession, Michael specialises in empowering emerging businesses and family enterprises by fostering renewal, enhancing value and smooth transitions to the next generation. Please do not hesitate to reach out if you need assistance with your estate planning.
This is general advice only and does not take into account your financial circumstances, needs and objectives. The article should not be relied upon as specific information or advice without obtaining appropriate professional advice after a detailed examination of your particular situation from a qualified KMT adviser.
