Legal tip 31: Trust Resettlements

Trust Resettlements


Any time a trust deed is changed there is the risk that the change could result in a ‘resettlement’. If a resettlement happens then it is considered a change so great that the nature of the trust is changed so it is a new trust. The would mean a notional transfer of all the assets of the trust has occurred. When a transfer happens it is a Capital Gains Tax event and also a stamp duty event.


The income tax side is relatively straight forward. As long as the trust deed foresees the possibility of the change happening then generally it won’t be a resettlement for CGT reasons.


But the stamp duty side is much more complex as each state has different stamp duty laws.


In NSW for example a change of trustee can be a resettlement if the deed is worded so that the new trustee becomes a beneficiary where they were not a beneficiary before.


Don’t go changing trust deeds without legal advice.

 

This can easily lead to very expensive mistakes in QLD. Duty is ruthless if you get it wrong.

 

What about a change in use of the trust - for eg if you had a barely used trust for a few share investments, then decided to run a business out of it?

 

This would not cause a resettlement. But the trustee will have to check the deed carefully to make sure a business is able to be run, otherwise a breach of trust.

 

Thanks Terry

 

Evening. What about removing a Guardian in a discretionary trust in VIC? Will this case re-settlement?

 

Generally not