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Discretionary Trust - excluded beneficiaries

Use Cleardocs to create all the documents you need to set up a Discretionary Trust (also known as a Family Trust) that specifically excludes certain classes of beneficiaries. You have the option to create:

  • a trust that excludes foreign beneficiaries; and/or
  • a direct lineal relatives (or lineal descendants) trust.

Cleardocs also has these types of trust available:

$379.50
  • Cleardocs fee incl GST $379.50
Product Benefits
  • Added option to exclude foreign beneficiaries, avoiding duty and land tax surcharges
  • Ability to limit beneficiaries to direct lineal or blood relatives
  • Copy function for address details
  • Bamford case compliant
  • Extensive online help and local phone support
  • Easy to use question interface
  • Full range of tailored discretionary (family) trust set up documents
  • Register the corporate trustee of your discretionary trust through Cleardocs
  • Change the trustee of your discretionary trust through Cleardocs
  • Copy function for address details
  • Stamping service for trusts executed in Victoria
Product Information

What documents are included in the Cleardocs package?

This Cleardocs document package includes:

What information do you need to order this Discretionary Trust through Cleardocs?

You can download our checklist of the information required to order this Cleardocs package.

General information for your Discretionary (Family) Trust

You can read more about discretionary (family) trusts here.

Foreign purchasers of land and duty implications

Consider if a foreign person will be involved in the administration or conduct of the trust, is a beneficiary of the trust or is related to a person who has a beneficial interest in the trust. If so, and if either now or in the future this trust will acquire land in Australia, the trustee should obtain advice about whether the trust may be liable for additional stamp duty and surcharge rates of land tax.

The Cleardocs Discretionary Trust - excluded beneficiaries document package allows you to choose whether you wish to limit distributions of income and capital, by excluding foreign persons as beneficiaries.

What is an exclusive or direct lineal relatives (discretionary) family trust?

An 'exclusive' or direct 'lineal' relatives family trust are terms generally used to refer to trusts under which eligible beneficiaries are limited to lineal descendants or blood relatives of a particular person. The range of beneficiaries is generally narrower than that under a 'family trust', which includes non-blood relative family members (such as spouses).

Such a trust is also referred to in common parlance as a 'bloodline trust', or a 'family protection' trust, 'spendthrift' trust, 'pedigree' trust or 'heirloom' trust.

The main issue about such a trust is how to set the parameters around who is (and is not) a beneficiary. Common issues include how to treat adopted and step-children, as there may be no lineal or blood relation and they may be (un)intentionally excluded from benefitting under the trust. The definition of 'child' in the Cleardocs Direct Lineal Relatives Trust includes an adoptive child.

Cleardocs Discretionary Trust Minutes Package — keeping proper records

Cleardocs offers a range of meeting minutes and resolutions for administration of your Discretionary (Family) Trust. Your Trust then has unlimited use of the Discretionary Trust Minutes Package for 12 months.

If you purchase your Trust's 12 months unlimited use of the Discretionary Trust Minutes Package when you set up your Discretionary (Family) Trust through Cleardocs, you will receive a 15% discount on the package.

Cleardocs stamping service — Victoria

Cleardocs offers a stamping service for deeds executed in Victoria. You can select the option for Cleardocs to duty stamp your trust deeds with the State Revenue Office Victoria on your behalf when you set up your trust.

Seek legal advice

The Discretionary (Family) Trust information here should be considered general in nature, and in no way interpreted as legal advice. You must always seek your own independent legal, accounting and financial advice about your particular situation. The summary on this page is for information purposes only.

Frequently Asked Legal Questions

Cleardocs is not a law firm. So as with all the legal material on this site, the answers to these "frequently asked legal questions" are provided by the law firm Maddocks. Cleardocs does not endorse those answers.

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Can I use Cleardocs to exclude specific named persons from being beneficiaries of a discretionary trust?

If the trust intends to purchase land now or in the future, then the Cleardocs Discretionary (Family) Trust allows you to select whether you wish to exclude 'foreign persons' from receiving distributions of income and capital by including clauses which prevent distributions being made to a person who is a foreign person.

The Cleardocs Discretionary Trust - Excluded Beneficiaries document package has 3 options for excluding particular classes of persons as beneficiaries:

  • foreign persons — when you create your deed, you can choose whether you wish to limit distributions of income and capital by including clauses which prevent any distributions being made to a person who is a foreign person.
  • people other than lineal relatives — when you create your deed, you can choose whether you wish to limit the beneficiaries of the trust to the named beneficiaries, and their direct lineal relatives (parents, children, grandchildren etc).
  • by the trustee excluding classes of beneficiaries — the trustee also has an express power under the Cleardocs discretionary trust deed to exclude any particular category of the 'classes of eligible beneficiaries' set out in the schedule to the deed.

What are the advantages of a direct lineal relatives trust?

The direct lineal relatives trust limits the range of persons who may benefit from an income or capital distribution from the trust, to persons who are related by blood to the named beneficiaries.

The primary purpose is to ensure that, to the extent possible, the assets of the trust only benefit those blood relatives, and cannot be distributed to, say, spouses of blood relatives (or nieces, nephews and other persons who are related by blood only to the spouse). They are used by families keen to ensure that, over the life of the trust and beyond the first generation who establish the trust, this original, primary purpose of the trust is preserved.

Although the classes of beneficiaries is very narrowly defined in the deed, the trustee also has a power to nominate additional classes of beneficiaries — provided that the trustee is satisfied that the class has a sufficient connection to the existing beneficiaries — such as 'other trusts of which the existing beneficiaries are also beneficiaries'.

The trust must also be complemented by appropriate estate planning to ensure continued control of the trust by blood relatives.

When might a discretionary trust be considered a 'foreign purchaser' or 'foreign person' or 'foreign trust'?

The answer to this depends on the jurisdiction, and on whether you are asking the question in relation to foreign acquisitions and takeover laws, stamp duty laws, or land tax laws.

In some jurisdictions, a 'foreign trust' or 'foreign purchaser' will be any trust in which a foreign person may be entitled to receive a distribution of more than 50% of the capital of the trust estate: this would apply in respect of any discretionary trust where, for example, a foreign natural person falls within the class of eligible beneficiaries.

In other jurisdictions, a trust will only be a foreign trust where, for example, a foreign person is named as a specified beneficiary, or would take distribution from the trust as a taker-in-default (that is, where the trustee fails to validly exercise his discretion).

What are the relevant surcharge rates of duty and land tax, relevant to 'foreign trusts'?

In Victoria, the total stamp duty surcharge rate is 13.5% (5.5%, plus an additional 8%). Regarding land tax, additional land tax of 2% is payable on top of the land tax already payable.

In NSW the additional transfer duty, to be paid on top of the normal stamp duty (which operates on a scale), is 8%. Regarding land tax, additional land tax of 2% is payable on top of the land tax already payable.

In Queensland the additional stamp duty, to be paid on top of the normal stamp duty (which operates on a scale), is 7% and additional land tax is levied at 2%.

In Tasmania, foreign purchaser additional duty is levied at 8% on the proportion of the dutiable value of residential property directly or indirectly acquired and 1.5% on the proportion of the dutiable value of primary production property directly or indirectly acquired.

In Western Australia and South Australia the additional stamp duty, to be paid on top of the normal stamp duty is 7%.

In the Australian Capital Territory, additional land tax of 0.75% is payable on top of the land tax already payable.

Can I amend my existing trust deed to exclude foreign beneficiaries?

Yes, but the question is whether this will be sufficient in all circumstances for the trust to safely navigate the relevant legislative provisions.

If the trust has been established, but has not yet entered into any binding arrangements to acquire the relevant asset, then the deed could be amended at that time.

If the trust has already acquired the relevant asset, then the change to the deed is unlikely to assist. However, for the purposes of annual land tax assessments, it may assist to amend the trust deed before the next date for assessment of land tax.

You can use the Cleardocs Discretionary Trust - Deed of Variation (excluding foreign persons) product to vary your trust deed to exclude 'foreign persons' - however that product will not assist you if you have named beneficiaries who are 'foreign persons' or where a 'foreign person' is involved in decisions regarding the administration or conduct of the trust for example, the appointor, trustee or director/shareholder of the trust is a 'foreign person'. In that case you will need to obtain legal advice.

Can I address all the relevant risks regarding foreign trusts and surcharge duty and land tax, by only amending the trust deed?

No.

This is because the different laws assess different characteristics of the trust to determine whether the trust is a 'foreign person'.

The laws in the different jurisdictions work on one or more of the following assessments:

  • whether a foreign person can or may receive a distribution of capital, even if they have no right to (and their distribution may only result from the trustee exercising its discretion);
  • whether a foreign person is named in the deed — even if the deed operates to prohibit distributions to that person while they are a foreign person;
  • whether the relevant authority considers that a foreign person has a substantial interest in a trust estate, by reference to whether the authority considers the person 'has the capacity to determine or influence the outcome of decisions about the administration or conduct of the trust': this would involve an assessment of the role of a foreign person as a director or shareholder of the trustee, or in the role of appointor.

So drafting a trust deed to prevent distributions to any person who is a foreign person — as the Cleardocs deed does — will not assist if:

  • a foreign person is named in the deed; or
  • if a foreign person is not named in the deed, but nevertheless is involved in decisions regarding the administration or conduct of the trust: whether, for example, as a director or shareholder of the trustee, or as an appointor of the trust.

Should I get a ruling in relation to my trust if foreign persons are involved?

Yes.

This is because the relevant laws all operate differently with varying levels of ambiguity about how they are to be interpreted.

Could I amend my deed so that foreign persons are involved in some way, but not to the extent which triggers the relevant laws?

Yes.

Again, this depends on the relevant law which is being considered.

For example, some jurisdictions only assess whether a foreign person can receive capital distributions from the trust. So the trust deed could be amended so as to enable income distributions to all beneficiaries including foreign beneficiaries, and exclude any foreign person from receiving distributions of capital from the trust estate. Please contact our HelpDesk team if you are interested in this arrangement and they will put you in touch with the legal team at Maddocks.


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